<PAGE>
As filed with the Securities and Exchange Commission on October 7, 1999
Registration No. 333-86853
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 7375 51-0384117
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
Stefan-George-Ring 19-23
D-81929 Munich
Germany
+49-89-993-150
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Andreas Eder
Chairman of the Board of Directors,
President and Chief Executive Officer
Cybernet Internet Services International, Inc.
Stefan-George-Ring 19-23
81929 Munich, Germany
+49-89-993-150
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Copies To:
Michael H. Chanin, Esq.
Powell, Goldstein, Frazer & Murphy LLP
1001 Pennsylvania Ave., NW
Washington, DC 20004
(202) 347-0066
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
[CYBERNET LOGO APPEARS HERE]
OFFER TO EXCHANGE
any and all outstanding
14.0% Senior Notes due 2009
($150,000,000 aggregate principal amount outstanding)
for
14.0% Senior Notes due 2009
of
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
----------------
TERMS OF EXCHANGE OFFER
. Expires 5:00 p.m., New York City time, November 8, 1999, unless
extended.
. Not subject to any other condition other than that the Exchange Offer
does not violate applicable law or any applicable interpretation of the
Staff of the Securities and Exchange Commission.
. All Outstanding Notes that are validly tendered and not validly
withdrawn will be exchanged.
. Tenders of Outstanding Notes may be withdrawn any time prior to 5:00
p.m., New York City time, on the date of the expiration of the Exchange
Offer.
. The exchange of Notes will not be a taxable exchange for U.S. federal
income tax purposes.
. We will not receive any proceeds from the Exchange Offer.
. The terms of the Exchange Notes to be issued are substantially similar
to the Outstanding Notes, except for transfer restrictions and
registration rights relating to the Outstanding Notes.
. We intend to list the Exchange Notes on the Luxembourg Stock Exchange.
----------------
See "Risk Factors" beginning on page 18 for a discussion of certain matters
that should be considered by prospective investors.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the adequacy
or accuracy of the disclosures in this prospectus. Any representation to the
contrary is a criminal offense.
----------------
The date of this prospectus is October 7, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Currency and Financial Statement Presentation............................ ii
Information Regarding Forward-Looking Statements......................... ii
Summary.................................................................. 1
Risk Factors............................................................. 18
Use of Proceeds.......................................................... 38
Exchange Rate Information................................................ 39
Price Range of Common Stock and Dividend Policy.......................... 40
The Exchange Offer....................................................... 41
Capitalization........................................................... 48
Selected Consolidated Financial and Operating Data....................... 49
Unaudited Pro Forma Consolidated Financial Statements.................... 51
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 56
Quantitative and Qualitative Disclosures About Market Risk............... 72
Business................................................................. 73
Information Regarding Significant Subsidiaries........................... 90
Management............................................................... 91
Related Party Transactions............................................... 98
Stock Ownership of Principal Beneficial Owners and Management............ 99
Description of the Exchange Notes........................................ 101
Description of Material Indebtedness..................................... 136
Certain United States Federal Income Tax Consequences.................... 137
Plan of Distribution..................................................... 142
Legal Matters............................................................ 143
Independent Accountants.................................................. 143
Available Information.................................................... 143
Listing and General Information.......................................... 144
Glossary of Terms........................................................ 146
Index to Financial Statements............................................ F-1
</TABLE>
The Exchange Offer is not being made to, nor will we accept surrenders for
exchange from, holders of Outstanding Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
No dealer, salesperson or other individual has been authorized to give any
information or make any representation not contained in this prospectus in
connection with the offering covered by this prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This prospectus does not constitute an offer or a solicitation
in any jurisdiction where, or to any person to whom, it is unlawful to make
such offer or solicitation. Neither the delivery of this prospectus, nor any
distribution of securities made hereunder shall under any circumstances, create
any implication that there has not been any change in the facts set forth in
this prospectus or in the affairs of the Company since the date hereof.
The securities may not be offered or sold in or into the United Kingdom
except in circumstances that do not constitute an offer to the public within
the meaning of the Public Offers of Securities Regulations 1995. All applicable
provisions of the Financial Services Act 1986 must be complied with in respect
of anything done in relation to securities in, from or otherwise involving the
United Kingdom.
We confirm, having made all reasonable inquiries, that this prospectus
contains all information which is material in the context of the exchange of
the Notes, that the information contained herein is true and accurate in all
material respects and is not misleading in any material respect, that the
opinions and intentions expressed herein are honestly held and that there are
no other facts the omission of which would make any of such information or the
expression of any such opinions or intentions misleading in any material
respect. The Company accepts responsibility accordingly.
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CURRENCY AND FINANCIAL STATEMENT PRESENTATION
In this prospectus, unless otherwise specified or unless the context
otherwise requires, all references to "Deutsche Marks," "DM" and "Pfennigs" are
to the lawful currency of the Federal Republic of Germany, all references to
"Lire," "Lira" and "Lit." are to the lawful currency of Italy, all references
to "Austrian Schillings" and "ATS" are to the lawful currency of Austria, all
references to "Euro" and "(Euro)" are to the lawful currency of the countries
of the European Monetary Union, and all references to "U.S. dollars," "dollars"
and "$" are to the lawful currency of the United States. Amounts stated in
dollars, unless otherwise indicated, have been translated from Deutsche Marks,
Lire, Austrian Schillings or Euro at assumed rates solely for convenience and
should not be construed as representations that the Deutsche Mark, Lira,
Austrian Schilling or Euro amounts actually represent such dollar amounts or
could be converted into dollars at the rate indicated or any other rate. Except
as otherwise indicated in this prospectus, such dollar amounts have been
translated from Euro to Deutsche Marks at the rate of (Euro)1.00 = DM 1.9558,
from Euro to Lire at the rate of (Euro)1.00 = Lit. 1,936.27, from Euro to
Austrian Schillings at the rate of (Euro)1.00 = ATS 13.7603 and from dollars to
Euro at the rate of $1.00 = (Euro)0.9363, the noon buying rate in The City of
New York for cable transfers in foreign currencies as certified by the Federal
Reserve Bank of New York for customs purposes (the "Noon Buying Rate") on
August 3, 1999. You should read "Exchange Rate Information" for information
regarding recent rates of exchange between the U.S. dollar and the Deutsche
Mark, between the U.S. dollar and the Austrian Schilling, between the U.S.
dollar and the Lira and between the U.S. dollar and the Euro.
Unless otherwise indicated, financial information in this prospectus has been
prepared in accordance with generally accepted accounting principles in the
United States.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference forward-looking
statements. These statements can often be identified by the use of forward-
looking terminology such as "estimate," "project," "believe," "expect," or
"anticipate" or the negative of such terms or other variations on such or
comparable terms, or by discussions of strategy that involve risks and
uncertainties. These forward-looking statements include statements concerning:
(1) the strategies for our business;
(2) our anticipated growth of the communications and information services
industry;
(3) our plans to devote significant management time and capital resources
to our business;
(4) our expectations as to funding capital requirements;
(5) our anticipated dates on which we will begin to provide certain
services or reach specific milestones in our business strategies; and
(6) other expectations, beliefs, future plans, anticipated development and
other matters that are not historical facts.
You should be aware that these forward-looking statements are not historical
facts and are subject to risks and uncertainties, including financial,
regulatory environment, changes and growth in the Internet and
telecommunications industry and the general economy, changes in product and
services offerings, risks associated with our limited operating history,
managing rapid growth, acquisitions and strategic investments, dependence on
effective information and billing systems and trend projections. Any of these
factors could cause actual events or results to differ materially from those
expressed or implied by the statements. We cannot assure that such results
expressed or implied by the statements will be achieved, or that, if achieved,
such results will be indicative of the results in subsequent periods. The most
important factors that could prevent us from achieving our stated goals include
the risks that we will not:
(1) achieve and sustain profitability from the creation and implementation
of our Internet Protocol based communications network;
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(2) overcome significant early operating losses;
(3) produce sufficient capital to fund our business strategies;
(4) enhance financial and management controls;
(5) attract and retain additional qualified management and other personnel;
(6) negotiate peering agreements; and
(7) make acquisitions necessary to expand our network, products and
services and to implement our strategies.
For a discussion of certain of these factors, see Risk Factors beginning on
page 18.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED HEREBY,
THROUGH PORTAL OR OTHERWISE, AT LEVELS WHICH MIGHT NOT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
YOU SHOULD READ "PLAN OF DISTRIBUTION" FOR A DESCRIPTION OF THESE ACTIVITIES.
GLOSSARY
This prospectus contains a number of technical and industry-related terms
that may not be easily understandable by all readers. We have provided
definitions for certain of these terms in a glossary which begins on page 146
of this prospectus.
iii
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SUMMARY
This summary highlights some information from this prospectus. It may not
contain all of the information that may be important to you. For a more
complete understanding of the Exchange Offer, we encourage you to read the
entire prospectus and the documents we have referred you to.
We began our operations 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 Cybernet Internet
Services International, Inc., a Delaware corporation ("Cybernet Delaware"), and
the Delaware corporation is the surviving entity of the merger. On June 30,
1999, we consummated our acquisition of all of the issued and outstanding
capital stock of Flashnet S.p.A. ("Flashnet"), a leading Internet Service
Provider ("ISP") based in Rome, Italy. The terms "Company," "Cybernet," "we,"
"us" and "our," as used in this prospectus, refer to Cybernet Delaware and its
subsidiaries as a combined entity, except where its use is such that it is
clear that such term means only Cybernet Delaware.
The Exchange Offer
On July 8, 1999 we completed a private offering of 150,000 Units (the
"Units"), each consisting of $1,000 principal amount of our 14.0% Senior Notes
due 2009 (the "Outstanding Notes" or "Senior Notes") and one Warrant (a
"Warrant") to purchase 30.2310693 shares of our common stock (the "Unit
Offering"). On the same day, we entered into a registration rights agreement
with the initial purchasers in the Unit Offering in which we agreed, among
other things, to deliver to you this prospectus and to complete this Exchange
Offer within 180 days of the issuance of the Outstanding Notes. You cannot
tender the Warrants issued as part of the Unit Offering for exchange. You
should read the discussion under the heading "Summary Description of the
Exchange Notes" and "Description of the Exchanges Notes" for further
information regarding the registered notes.
We believe that the notes issued in this Exchange Offer (the "Exchange Notes"
and, together with the Outstanding Notes, the "Notes") may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, as amended, subject to certain conditions. You
should read the discussion under the headings "Summary of the Terms of Exchange
Offer" and "The Exchange Offer" for further information regarding the Exchange
Offer and resale of the Exchange Notes.
The Company
Through our subsidiaries, we are a leading provider of Internet
communications services and solutions in Germany, Austria, Italy and
Switzerland targeting small- and medium-sized enterprises. Our Internet
protocol ("IP") solutions are based on a core product offering consisting of
Internet connectivity and value-added services. Such value-added services
include virtual private networks ("VPNs"), web-hosting, co-location, security
solutions, electronic commerce, Intranet/Extranet and workflow solutions. We
offer consulting, design and installation, training, technical support, and
operation and monitoring of IP-based systems. We market our products and
services primarily to small- and medium-sized enterprises in Europe because we
believe that they represent an underserved and sizeable market. Companies in
this market are characterized by a lack of internal technical resources,
rapidly expanding communications needs and a high propensity to utilize third-
party outsourcing. We are recognized as a provider of high quality Internet
connectivity services and solutions to
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enterprises and as one of Germany's leading Internet access providers.
Recently, IT Services, a leading German computer magazine, ranked us number one
among German ISPs in terms of infrastructure, international outlook and
customer service.
Our mission is to become a leading European provider of IP-based
communications services and network-based business solutions. We intend to
continue to focus on small- and medium-sized enterprises in Europe,
offering a full portfolio of advanced communications products, including
Internet access and value-added services.
We believe that our capabilities in Internet, telecommunications and systems
integration services differentiate us from many of our competitors who offer
some, but not all, of the products and services that we offer. We approach and
win business customers by offering and designing a full range of services and
solutions for mission critical communications needs, such as electronic
commerce solutions, Intranets and VPNs. This enables us to work directly with
different levels of our customers' organizations, to participate in the design
of customers' systems and to offer additional network and communications
services as our customers' businesses grow and their needs change. By basing
our solutions upon product modules, we are able to meet our customers'
individual needs at competitive prices, while realizing higher margins by
reducing costs through standardization. Also, as a result of the high quality
of our services and the value-added nature of our solutions, we believe that we
experience higher customer retention rates and that we are less vulnerable to
pricing pressures than many of our competitors in the telecommunications and
Internet industries.
We sell our services and solutions primarily through our direct sales force.
Most of our sales people are based in regional offices and are supported by
specialized technical and commercial assistance from our customer care centers
in Munich, Vienna, Zurich and Trento. We complement our direct sales effort
with an extensive reseller and referral network of over 100 companies and by
forming marketing alliances with technology leaders such as Hewlett-Packard,
Microsoft, Network Associates and Sun Microsystems. While our reseller
arrangements begin with sales of our basic product offerings, such as
connectivity, they can lead to direct sales by us of more complex solutions,
such as security solutions or VPNs.
We operate a geographically distributed IP network based upon leased lines.
Our network is spread over six countries and consists of network nodes equipped
primarily with Cisco and Ascend routers connected to a redundant high-
performance backbone infrastructure. We help corporate customers reduce
telecommunications costs by offering Internet connectivity through dedicated
lines at more than 56 directly owned Points of Presence ("POPs"). We also offer
a system of dial-in nodes with ISDN or analog modem ports to smaller
enterprises, employees and affiliates of corporate customers. These nodes
permit local dial-in access throughout Germany, Italy and Switzerland and most
of Austria. Flashnet owns 20 of these POPs for dedicated lines (which can also
accommodate dial-in traffic) and has access to more than 300 dial-in access
nodes. Recently, we reorganized our dial-in network in Germany by concentrating
multiple dial-in access nodes into larger access points called "Virtual POPs,"
which use a Public Switched Telephone Network ("PSTN") to aggregate traffic. We
expect this will generate operating efficiencies, in that there will be fewer
overall nodes to service. We are expanding our network across Germany, Austria,
Italy and Switzerland by installing additional POPs and replacing dial-in
access nodes with Virtual POPs.
We also plan to add digital circuit switching capabilities to our network to
offer voice telecommunications services to our customers, capture more revenues
from dial-in traffic and provide termination services to other carriers.
We have increased our revenues from $0.3 million in 1996 to $8.6 million in
1998 ($17.4 million pro forma for acquisitions, including Flashnet). As of
March 31, we provided services to approximately 10,800 business customers, an
increase from approximately 200 customers at December 31, 1996. The majority of
these customers are small- to medium-sized enterprises. We also provide
services to larger
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companies and organizations such as BASF Corporation, German Parcel,
Commerzbank, Hewlett-Packard, Start Media Plus, DaimlerChrysler Aerospace
Dornier, BMW Financial Services, Raiffeisenbank, Zuegg, Honeywell, Lauda Air,
Modern Times, Amadeus, Lufthansa and News. As of March 31, 1999, including
customers obtained through resellers, Flashnet had approximately 1,600 business
customers and 38,000 residential customers, including large organizations such
as Nokia Italia, ERG, Avis, Ferrovie dello Stato (Italian Railways) and the
Italian Parliament.
Our management team consists of individuals with extensive Internet,
Information Technology ("IT") and telecommunications expertise. Andreas Eder,
co-founder and Chief Executive Officer, previously held various positions at
Siemens-Nixdorf Information Systems and The Boston Consulting Group. Dr.
Alessandro Giacalone, Chief Operating Officer, previously headed the European-
Industry Computer Research Center and established it as a leading German ISP.
He was also a Professor of Computer Science at the State University of New York
at Stony Brook. Robert Eckert, our Chief Financial Officer, was previously with
Netsource A/S, Swisscom International, and General Electric (USA). Walter
Franz, who is principally responsible for our network, was director of network
operations for MCI/WorldCom in Germany and also worked for MFS
Telecommunications and Motorola. In addition, we have recruited individuals at
various managerial levels from leading industry participants such as
AT&T/Unisource, British Telecommunications and Deutsche Telekom. Our policy is
to retain the key executives of the companies we acquire. To this end, we
typically structure our acquisitions to give such executives an equity
participation in the future success of our Company. We have retained most of
the key managers in our acquisitions.
Business Strategy
Our objective is to become a leading provider of communications services and
network-based business solutions to small- to medium-sized enterprises in
Europe. We currently offer a full-service portfolio of advanced communications
products including Internet access and value-added services, as well as
switched voice services. The principal elements of our business strategy are as
follows:
Target Small- to Medium-Sized Business Enterprises. We focus on small- to
medium-sized enterprises. In Germany, we focus on companies that typically have
revenues between (Euro)25 million and (Euro)500 million. According to
Statistisches Bundesamt, a German government agency, such companies generate
45% of Germany's total corporate revenues. In other countries, the revenues of
small- to medium-sized enterprises as a portion of total corporate revenues
vary. We believe that this customer segment is underserved and has substantial
and increasing communications needs. Small- to medium-sized enterprises
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 IT, tourism, retail, finance, government, media and
advertising. For many of these industries, utilization of the Internet has
become essential. In certain markets, we also serve high-end residential
customers.
Initiate Long-Term Relationships with Customers Through Local Coverage and at
an Early Stage. Unlike some of our competitors, we use strong local management
teams to address the needs of our customers. Most of our sales people are based
in regional offices and are supported by specialized technical and commercial
assistance from our offices in Munich, Vienna, Zurich and Trento. This strategy
allows us to initiate close relationships with our customers at an early stage
of their Internet service requirements, engage in strategic discussions with
senior management about their communications requirements, participate in the
design of their systems, 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. This also enables us to offer
additional solutions to our customers without having to compete primarily on
price.
Develop Total Communications Offering. We currently offer both Internet
connectivity services and modular Internet business solutions to our customers.
Our modular solutions include web-hosting and -housing,
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VPNs, security solutions, electronic commerce solutions and Intranet and
workflow solutions. As technology evolves, we intend to broaden our product
offering to include additional services, solutions and innovations that have
proven reliable and effective. In June 1999, we started offering voice
services. Our ability to offer voice services will allow us to provide one-stop
shopping for integrated voice and data solutions. We believe IP technology and
IP applications will be the primary platform and interface for business, data
and voice communications in the future.
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, Microsoft, Network
Associates, and Sun Microsystems. We are expanding our direct sales force and
regional offices to increase our local coverage. We currently have 19 sales
offices (seven in Germany, one in Austria, nine in Italy and two in
Switzerland), and we plan to increase this number. We intend to expand our
reseller and referral arrangements to increase sales of our basic connectivity
services and to enhance our marketing alliances to obtain more potential
customer contacts.
Control Our Network. We consider it strategically important to control and
operate our own network infrastructure. This will enable us to: (i) maximize
revenues by offering total communications services, including broad band and
voice services; (ii) achieve the highest levels of service quality and
reliability; and (iii) reduce transmission costs. This involves:
. optimizing the configuration of our IP network by concentrating
international access at a few select locations where the cost of global
access can be minimized; concentrating network planning and management
in one central location; and planning the network's redundancy on a pan-
European basis rather than on a local basis;
. establishing up to nine large-scale data centers to enhance our co-
location and housing service offering;
. acquiring up to nine carrier grade digital circuit switches to be
installed in key cities; and
. leasing transmission capacity on a long-term basis, acquiring backbone
capacity or constructing our own infrastructure in selected locations to
transport high bandwidth data and voice services over all available
transmission protocols (including alternative long-haul transmission
such as microwave).
Accelerate Growth in Europe Through Targeted Acquisitions. To date, we have
successfully integrated three acquisitions. We have recently acquired three
additional companies which we are in the process of integrating. We will seek
to acquire additional Internet-related companies to strengthen our presence in
other European countries while continuing to grow internally. We look for
strategically and culturally compatible companies to add to our strong
management, enhance our technical expertise and enhance our customer base in
our current coverage area and bordering countries.
Acquisitions
Since we began business in 1996, we have acquired six companies, through
which we have expanded our technical capabilities, attracted additional talent,
entered new markets and increased our customer base:
. Cybernet E-Commerce. In September 1997, we acquired 100% of Artwise GmbH
("Artwise") which was later renamed Cybernet E-Commerce GmbH & Co.
("Cybernet E-Commerce"), a German company which has provided us with
expertise in Intranet messaging and workflow solutions and established
our presence in the Ulm region of Germany;
. Eclipse. 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;
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. Open:Net. 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 Cybernet E-
Commerce;
. Vianet. In December 1998, we acquired 100% of Vianet Telekommunikations
A.G. ("Vianet"), a leading Austrian ISP through which we entered the
Austrian market and significantly increased our customer base;
. Sunweb. In May 1999, we acquired 51% and an option to purchase the
remaining 49% of Sunweb Internet Services SIS AG ("Sunweb"), through
which we established a presence in Switzerland and acquired substantial
additional expertise in switched voice services; and
. Flashnet. In June 1999, we acquired 100% of Flashnet, a leading Italian
ISP, through which we gained access to all major business centers in
Italy.
Recent Developments
Flashnet Acquisition. On June 30, 1999, we purchased all of the issued and
outstanding capital stock of Flashnet for a purchase price consisting of Lit.
41.0 billion ($22.6 million) in cash and 301,290 newly issued shares of our
common stock, a total purchase price valued at Lit. 54.2 billion ($29.9
million) as of May 14, 1999, the contract date. The selling stockholders
consisted of: (i) two affiliates of 3i, an English investment group, which
together owned 42.6% of Flashnet's stock, on a fully diluted basis, and which
received their portion of the purchase price in cash; and (ii) members of
Flashnet's management and their affiliates who owned the remaining stock and
received a combination of Cybernet stock and cash. Among this latter group of
selling stockholders were the President, Managing Director, Sales Director and
two technical directors, all of whom have agreed to continue as employees under
long-term contracts with customary covenants not to compete.
Headquartered in Rome, Flashnet is the third largest ISP in Italy, offering
business and residential customers dedicated lines, dial-in and satellite
access to the Internet, web-hosting, co-location services, electronic commerce,
VPNs and a variety of other services. It maintains a customer care center which
is available 24 hours per day to business customers and 18 hours per day to
residential customers. In 1998, Flashnet had revenues of Lit. 8.3 billion ($4.6
million).
Founded in 1994 as a division of a computer distribution group, Flashnet
originally focused on the residential market and built a clientele which
totaled approximately 38,000 residential customers as of March 31, 1999. Over
the last 20 months, it has shifted its marketing focus to businesses and has
already developed a business customer base consisting of approximately 1,600
customers as of March 31, 1999.
Flashnet owns 20 POPs for dedicated lines and has access to more than 300
dial-in access nodes which can also accommodate dial-in traffic. The POPs
interconnect with each other through leased lines. In Rome, Flashnet has
international access through primary links with MCI/WorldCom, Global One and
Ebone. Most of Flashnet's network equipment is manufactured by Cisco.
The table below summarizes certain operating and financial results of
Flashnet:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ ---------
<S> <C> <C>
Operating Data
Residential Customers(/1/)............................... 31,556 38,269
Business Customers(/1/).................................. 1,096 1,625
------ ------
Total Customers........................................ 32,652 39,894
</TABLE>
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(1)Including customers obtained through resellers.
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<TABLE>
<CAPTION>
Year or Six Months Ended
-------------------------------------------
December 31, June 30, December 31, June 30,
1998 1999 1998 1999
------------ -------- ------------ --------
Lit. Lit. $ $
------------ -------- ------------ --------
(millions) (thousands)
<S> <C> <C> <C> <C>
Financial Data (US GAAP)
Net Sales.......................... 8,334 7,662 4,597 4,352
EBITDA............................. (2,354) (101) (1,298) (57)
EBIT............................... (3,011) (543) (1,661) (308)
Net Income......................... (2,366) (850) (1,305) (483)
Stockholders' deficit(/1/)......... (533) 417 (294) 251
</TABLE>
- --------
(1) At period end.
Unit Offering. On July 8, 1999, we sold 150,000 Units consisting of 14.0%
Senior Notes due 2009 and Warrants to purchase an aggregate of 4,534,604 shares
of our common stock (representing approximately 15% of our issued and
outstanding capital stock on a fully diluted basis at that time). The net
proceeds of the Unit Offering were $145,500,000. Of that amount, $57,466,076
was used to purchase U.S. government securities pledged to a collateral agent
to secure payment of the first six interest payments on the Senior Notes, and
$22,374,264 was used to repay an interim loan (the "Interim Loan") incurred to
finance the cash portion of the acquisition price for Flashnet.
Discount Notes Offering. On August 26, 1999, we sold (the "Discount Notes
Offering") $50,002,183 in aggregate initial accreted value of our 13.0%
Convertible Senior Subordinated Discount Notes due 2009 (the "Discount Notes").
Each Discount Note was sold at an initial accreted value of $534.78, a
substantial discount from its principal amount at maturity of $1,000. There
will not be any accrual of cash interest on the Discount Notes prior to August
15, 2004 or payment of cash interest prior to February 15, 2005. Holders of the
Discount Notes may convert the Discount Notes at their option into our common
stock at any time after August 26, 2000. The number of shares of our common
stock issuable upon conversion of the Discount Notes is equal to the accreted
value of the Discount Notes being converted on the date of conversion divided
by $25.00, subject to adjustment under certain events. If the market price of
our common stock exceeds certain prices at any time after August 26, 2000, the
Discount Notes will automatically convert into shares of our common stock at
the same conversion ratio. The net proceeds of the Discount Notes Offering were
$47,502,074, which we intend to use for capital expenditures and general
corporate purposes.
PIK Notes Offering. On August 26, 1999, we sold (the "PIK Notes Offering")
(Euro)25 million aggregate principal amount of our 13.0% Convertible Senior
Subordinated Pay-In-Kind Notes due 2009 (the "PIK Notes"). We will pay interest
on the PIK Notes in the form of additional notes issued under the pay-in-kind
feature through August 15, 2004. From that date to maturity interest will
accrue and will be paid in cash. Holders of the PIK Notes and any additional
notes issued under the pay-in-kind feature may convert both types of notes at
their option into our common stock at any time after August 26, 2000. The
number of shares of our common stock issuable upon conversion of these notes is
equal to the principal value of the notes being converted divided by $25.00,
subject to adjustment under certain circumstances. The net proceeds of the PIK
Notes Offering were (Euro)23,750,000, which we intend to use for capital
expenditures and general corporate purposes.
General Information
Our principal executive offices are located at Stefan-George-Ring 19-23,
81929 Munich, Germany, telephone number: +49-89-993-150, and our registered
address in the United States is Corporation Services Company, 1013 Centre Road,
Wilmington, Delaware 19805.
6
<PAGE>
Summary of the Terms of the Exchange Offer
This Exchange Offer relates to the exchange of up to $150,000,000 aggregate
principal amount of Outstanding Notes for an equal aggregate principal amount
of Exchange Notes. The Exchange Notes will be our obligations and are entitled
to the benefits of the indenture relating to the Outstanding Notes. The form
and terms of the Exchange Notes are identical in all material respects to the
form and terms of the Outstanding Notes except that the Exchange Notes have
been registered under the Securities Act, and therefore are not subject to
restrictions on transfer and are not entitled to the benefits of the
registration rights granted under the registration rights agreement, executed
as a part of the Unit Offering, dated July 8, 1999, among our Company and the
initial purchasers set forth therein.
Registration Rights..... On July 8, 1999, we and the initial purchasers agreed
that you, as a holder of the Outstanding Notes, would
be entitled to exchange your Outstanding Notes for
registered Exchange Notes with substantially
identical terms. This Exchange Offer is intended to
fulfill that agreement. After the Exchange Offer is
complete, you will no longer be entitled to any
exchange or registration rights with respect to your
Outstanding Notes (unless certain conditions are
met). See "The Exchange Offer--General." In such
event, you will continue to hold the Outstanding
Notes and will be entitled to all the rights and
subject to all the limitations applicable to the
Outstanding Notes under the indenture governing the
Outstanding Notes, except to the extent such rights
or limitations by their terms terminate or cease to
have further effectiveness as a result of the
Exchange Offer. All Outstanding Notes will continue
to be subject to certain restrictions on transfer.
The Exchange Offer...... We are offering to exchange $1,000 principal amount
of 14.0% Senior Notes due 2009 which have been
registered under the Securities Act for each $1,000
principal amount of our 14.0% Senior Notes due 2009
which were issued in the Unit Offering. In order to
be exchanged, an Outstanding Note must be properly
tendered and accepted. All Outstanding Notes that are
validly tendered and not validly withdrawn will be
exchanged.
As of this date, there are $150 million in aggregate
principal amount of Senior Notes outstanding.
We will issue registered Exchange Notes on or
promptly after the expiration of the Exchange Offer.
Resale of the Exchange Based on an interpretation by the Staff of the
Notes.................. Securities and Exchange Commission set forth in no-
action letters issued to third parties, including
"Exxon Capital Holdings Corporation" (available
May 13, 1988), "Morgan Stanley & Co. Incorporated"
(available June 5, 1991), "Mary Kay Cosmetics, Inc."
(available June 5, 1991) and "Warnaco, Inc."
(available October 11, 1991), we believe that the
Exchange Notes issued in the Exchange Offer may be
offered for resale, resold and otherwise transferred
by you without compliance with the registration and
prospectus delivery provisions of the Securities Act
provided that:
7
<PAGE>
. you are acquiring the Exchange Notes issued in the
Exchange Offer in the ordinary course of business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes issued to
you in the Exchange Offer;
. you are not a broker-dealer who purchased such
Outstanding Notes directly from us for resale
pursuant to Rule 144A or any other available
exemption under the Securities Act; and
. you are not an "affiliate" (as such term is
defined in Rule 405 of the Securities Act) of our
Company.
If our belief is inaccurate and you transfer any
Exchange Note issued to you in the Exchange Offer
without delivering a prospectus meeting the
requirements of the Securities Act or without an
exemption from registration of your Exchange Notes
from such requirements, you may incur liability under
the Securities Act. We do not assume or indemnify you
against such liability, but we do not believe that
any such liability should exist.
Each broker-dealer that is issued Exchange Notes in
the Exchange Offer for its own account in exchange
for Notes which were acquired by such broker-dealer
as a result of market-making or other trading
activities, must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities
Act, in connection with any resale of the Exchange
Notes issued in the Exchange Offer. The letter of
transmittal states that by so acknowledging and by
delivering a prospectus, such broker-dealer will not
be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. A broker-dealer
may use this prospectus for an offer to resell,
resale or other retransfer of the Exchange Notes
issued to it in the Exchange Offer. We have agreed
that, for a period of 180 days after the consummation
of the Exchange Offer, we will make this prospectus
and any amendment or supplement to this prospectus
available to any such broker-dealer for use in
connection with any such resales. We believe that no
registered holder of the Outstanding Notes is an
"affiliate" (as such term is defined in Rule 405 of
the Securities Act) of our Company.
Expiration of Exchange The Exchange Offer will expire at 5:00 p.m., New York
Offer.................. City time, on November 8, 1999, unless we decide to
extend the expiration date in which case the term
"expiration date" means the latest date and time to
which the Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and the
Outstanding Notes...... The Exchange Notes will bear interest from July 8,
1999. Holders of Outstanding Notes whose Notes are
accepted for exchange will be deemed to have waived
the right to receive any payment in respect of
interest on such Outstanding Notes accrued from July
8, 1999 to the date of the issuance of the Exchange
Notes. Consequently, holders who exchange their
Outstanding Notes for Exchange Notes will receive the
same interest payment on January 1, 2000 (the first
interest payment date
8
<PAGE>
with respect to the Outstanding Notes and the
Exchange Notes) that they would have received had
they not accepted the Exchange Offer.
Termination of the
Exchange Offer......... We may terminate the Exchange Offer if we determine
that our ability to proceed with the Exchange Offer
could be materially impaired due to any legal or
governmental action, new law, statute, rule or
regulation or any interpretation of the Staff of the
Securities and Exchange Commission of any existing
law, statute, rule or regulation. We do not expect
any of the foregoing conditions to occur, although
there can be no assurance that such conditions will
not occur. Holders of Outstanding Notes will have
certain rights against our Company under the
registration rights agreement executed as part of the
Unit Offering should we fail to consummate the
Exchange Offer.
Procedure for Tendering
Outstanding Notes...... If you are a holder of an Outstanding Note and you
wish to tender your Note for exchange pursuant to the
Exchange Offer, you must transmit to The Bank of New
York, as exchange agent, on or prior to the
expiration date:
either
. a properly completed and duly executed letter of
transmittal, which accompanies this prospectus, or
a facsimile of the letter of transmittal, together
with the Outstanding Notes and all other documents
required by the letter of transmittal, to the
exchange agent at the address set forth on the
cover page of the letter of transmittal; or
. a computer-generated message transmitted by means
of the Automated Tender Offer Program system of
The Depository Trust Company ("DTC") and received
by the exchange agent and forming a part of a
confirmation of book entry transfer in which you
acknowledge and agree to be bound by the terms of
the letter of transmittal;
and, either
. a timely confirmation of book-entry transfer of
your Outstanding Notes into the exchange agent's
account at DTC pursuant to the procedure for book-
entry transfers described in this prospectus under
the heading "The Exchange Offer--Procedures for
Tendering," must be received by the exchange agent
on or prior to the expiration date; or
. the documents necessary for compliance with the
guaranteed delivery procedures described below.
By executing the letter of transmittal, each holder
will represent to us that, among other things, (1)
the Exchange Notes to be issued in the Exchange Offer
are being obtained in the ordinary course of business
of
9
<PAGE>
the person receiving such Exchange Notes whether or
not such person is the holder, (2) neither the holder
nor any such other person has an arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes, and (3) neither
the holder nor any such other person is an
"affiliate" (as such term is defined in Rule 405 of
the Securities Act) of our Company.
Special Procedures for
Beneficial Owners...... If you are a beneficial owner of Outstanding Notes
that are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender such Outstanding Notes in the
Exchange Offer, you should promptly contact such
person in whose name your Outstanding Notes are
registered and instruct such person to tender on your
behalf. If you, as such beneficial holder, wish to
tender on your own behalf you must, prior to
completing and executing the letter of transmittal
and delivering your Outstanding Notes, either make
appropriate arrangements to register ownership of the
Outstanding Notes in your name or obtain a properly
completed bond power from the registered holder. The
transfer of record ownership may take considerable
time.
Guaranteed Delivery If you wish to tender your Outstanding Notes and time
Procedures............. will not permit your required documents to reach the
exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be completed
on time or certificates for registered notes cannot
be delivered on time, you may tender your Outstanding
Notes pursuant to the procedures described in this
prospectus under the heading "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights....... You may withdraw the tender of your Outstanding Notes
at any time prior to 5:00 p.m., New York City time,
on the expiration date.
Acceptance of
Outstanding Notes and
Delivery of Exchange
Notes.................. Subject to certain conditions (as summarized above in
"Termination of the Exchange Offer" and described
more fully under "The Exchange Offer--Termination"),
we will accept for exchange any and all Outstanding
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on the
expiration date. The Exchange Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the expiration date.
Certain U.S. Federal
Income Tax
Consequences........... The exchange of the Notes will generally not be a
taxable exchange for United States federal income tax
purposes. We believe you will not recognize any
taxable gain or loss or any interest income as a
result of such exchange. You will, however, have to
include interest on the Exchange Notes in gross
income to the same extent as on the Outstanding
Notes.
10
<PAGE>
Use of Proceeds......... We will not receive any proceeds from the issuance of
the Exchange Notes pursuant to the Exchange Offer. We
will pay all expenses incident to the Exchange Offer.
Exchange Agent.......... The Bank of New York is serving as exchange agent in
connection with the Exchange Offer. The exchange
agent can be reached by registered or certified mail,
at The Bank of New York, 101 Barclay Street, Floor 7
East, New York, New York 10286, Attention: Enrique
Lopez, Reorganization Section or by hand or overnight
delivery at The Bank of New York, 101 Barclay Street,
Ground Level, Corporate Trust Services Window,
New York, New York 10286, Attention: Enrique Lopez,
Reorganization Section. For more information with
respect to the Exchange Offer, the telephone number
for the exchange agent is (212) 815-2742 and the
facsimile number for the exchange agent is (212) 815-
6339.
11
<PAGE>
Summary Description of the Exchange Notes
The form and terms of the Exchange Notes will be substantially the same as
the form and terms of the Outstanding Notes except that::
(1) the Exchange Notes have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof; and
(2) the holders of the Exchange Notes, except for limited instances, will
not be entitled to further registration rights under the registration
rights agreement.
The Exchange Notes will evidence the same debt as the Outstanding Notes and
will be entitled to the benefits of the indenture under which the Outstanding
Notes were issued.
Issuer.................. Cybernet Internet Services International, Inc.
Notes Offered........... $150,000,000 aggregate principal amount of 14.0%
Senior Notes due 2009.
Maturity Date........... July 1, 2009.
Interest Payment
Dates.................. January 1 and July 1, beginning on January 1, 2000.
Ranking................. The Exchange Notes will be senior unsecured (except
to the extent described in "Collateral Account"
below) debt. They will rank senior in right of
payment to all our future subordinated debt and
equally in right of payment to all our existing and
future senior debt. Because Cybernet Delaware
conducts its business principally through its
subsidiaries, existing and future debt and other
liabilities and commitment of its subsidiaries,
including trade payables, will be effectively senior
to the Exchange Notes.
Collateral Account...... Concurrently with the completion of the Unit
Offering, we purchased, pledged and transferred to an
Collateral agent, for your benefit, U.S. Government
Securities in such amounts as will be sufficient upon
scheduled interest and principal payments of such
securities to provide for the payment in full of the
first six scheduled interest payments on the Notes
(excluding any amount due under tax gross-up
provisions of the Notes). We used approximately $57
million to acquire these government securities. We
pledged these government securities to the collateral
agent for your benefit, as holders of the Notes, and
deposited them into an Collateral account held by the
collateral agent for the benefit of the trustee under
the indenture governing the Notes (the "Senior Notes
Indenture") and holders of the Notes, in accordance
with a collateral agreement. We may use the funds in
the collateral account to pay interest payments on
the Notes to you. After payment of the first six
interest payments, if the maturity date of the Notes
has not been accelerated, any amounts remaining in
the collateral account will be returned to us. If the
maturity date of the Notes accelerates before the
sixth interest payment date, the amount remaining in
the collateral account will be paid to the trustee,
who can use the remaining amount to pay any amounts
owing on the Notes as provided in the Senior Notes
Indenture. Before such
12
<PAGE>
disbursement, any uninvested funds contained in the
collateral account will be invested in cash
equivalents. You should read "Description of the
Notes--Collateral Account" for a further discussion
of the collateral arrangement.
Optional Redemption..... We may redeem the Exchange Notes, in whole or in
part, at any time on or after July 1, 2004, at the
redemption prices set forth in this prospectus, plus
accrued and unpaid interest, liquidated damages and
additional amounts due under tax gross-up provisions
of the Exchange Notes, if any, to the redemption
date.
We may also redeem all but not just a portion of the
Exchange Notes at any time, if changes in certain tax
laws impose certain withholding taxes on amounts
payable on the Exchange Notes. If we decide to do
this, we must pay holders a price equal to par value
plus accrued interest and the other amounts described
in the section "Description of the Exchange Notes--
Redemption for Taxation Reasons."
Change of Control....... Upon a change of control, (as defined in the Senior
Notes Indenture) each holder of the Exchange Notes
may require us to repurchase all or a portion of its
Exchange Notes at a purchase price equal to 101% of
the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, liquidated damages and
additional amounts due under tax gross-up provisions
of the Exchange Notes, if any, to the date of
repurchase. For a discussion of the circumstances
that would constitute a change of control please see
"Description of the Exchange Notes" in this
prospectus.
Withholding Taxes;
Additional Amounts..... Unless required by law, all our payments in respect
of the Exchange Notes will be made without
withholding or deduction for or on account of any
taxes imposed by or within any relevant taxing
jurisdiction. Subject to certain exceptions and
limitations, we will be required to pay any
additional amounts as may be necessary in order that
the net amounts received by you after any withholding
or deduction in respect of any such taxes required by
law shall equal the respective amounts of principal
and interest that would have been received in respect
of the Exchange Notes in the absence of such
withholding or deduction.
Certain Covenants....... The Senior Notes Indenture contains covenants that,
among other things, limit our ability and the ability
of certain of our subsidiaries to:
. incur certain additional indebtedness;
. pay dividends on, redeem or repurchase our capital
stock or make certain investments;
. issue or sell capital stock of certain of our
subsidiaries;
. engage in transactions with affiliates;
. create certain liens;
. sell assets;
. guarantee indebtedness;
13
<PAGE>
. restrict dividend or other payments to us; and
. consolidate, merge or transfer all or
substantially all our assets and the assets of our
subsidiaries on a consolidated basis.
These covenants are subject to important exceptions
and qualifications, which are described under
"Description of the Exchange Notes" in this
prospectus.
Exchange Offering;
Registration Rights.... Under the registration rights agreement executed as
part of the Unit Offering, we have agreed to:
. file a registration statement within 90 days after
the issue date of the Outstanding Notes enabling
noteholders to exchange the privately placed notes
for publicly registered notes with substantially
identical terms;
. use our best efforts to cause the registration
statement to become effective within 150 days
after the issue date of the Outstanding Notes;
. consummate the Exchange Offer within 30 days after
the Securities and Exchange Commission declares
the registration statement effective; and
. use our best efforts to file a shelf registration
statement for the resale of the Notes if we cannot
complete an Exchange Offer within the time periods
listed above in certain other circumstances.
The interest rate on the Notes will increase if we do
not comply with our obligations under the
registration rights agreement. See "The Exchange
Offer."
Trustee, Collateral
Agent and Paying
Agent.................. The Bank of New York.
Listing................. We expect the Notes to be eligible for trading in the
PORTAL market. We intend to apply to list the
Exchange Notes on the Luxembourg Stock Exchange.
You should read "Description of the Exchange Notes" for additional
information concerning the securities being offered.
14
<PAGE>
Consequences of Failure to Exchange
Untendered Outstanding Notes that are not exchanged for Exchange Notes
pursuant to the Exchange Offer will remain restricted securities. Outstanding
Notes will continue to be subject to the following restrictions on transfer:
(1) Outstanding Notes may be resold only if registered pursuant to the
Securities Act, if an exemption from registration is available under the
Securities Act, or if neither such registration nor an exemption is required by
law; (2) Outstanding Notes shall bear a legend restricting transfer in the
absence of registration or an exemption from registration; and (3) a holder of
Outstanding Notes who desires to sell otherwise dispose of all or any part of
its Outstanding Notes under an exemption from registration under the Securities
Act, if requested by us, must deliver to us an opinion of independent counsel
experienced in Securities Act matters, reasonably satisfactory in form and
substance to us, that such an exemption is available.
Risk Factors
See "Risk Factors" for a discussion of factors you should carefully consider
before deciding to invest in the Exchange Notes. Risk Factors begin on page 18.
15
<PAGE>
Summary Consolidated Financial and Operating Information
The summary historical consolidated financial and operating data as of and
for the years ended December 31, 1996, 1997 and 1998 and the six months ended
June 30, 1998 and 1999 have been derived from our audited Consolidated
Financial Statements included elsewhere in this prospectus. The pro forma
consolidated financial data has been derived from our unaudited Pro Forma
Consolidated Financial Statements included elsewhere in this prospectus. The
financial data set forth below has been prepared in accordance with generally
accepted accounting principles in the United States ("US GAAP"). The unaudited
interim financial statements contained in this prospectus include all
adjustments, consisting of normal recurring adjustments, that management
considers necessary for a fair presentation of the financial position and
results of operations for the interim periods.
The historical consolidated financial data set forth below should be read in
conjunction with our Consolidated Financial Statements and the notes thereto
included elsewhere in this prospectus. The pro forma consolidated financial
data set forth below should be read in conjunction with our unaudited Pro Forma
Consolidated Financial Statements and the notes thereto included elsewhere in
this prospectus.
Results of operations for the periods presented are not necessarily
indicative of results of operations for future periods. Our development and
expansion activities, including acquisitions, during the periods shown below,
may significantly affect the comparability of this data from one period to
another. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
Years ended December 31, Six months ended June 30,
--------------------------------- ----------------------------
Pro forma Pro forma
1996 1997 1998 1998/(1)/ 1998 1999 1999/(1)/
----- ------ ------- --------- ------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue
Internet Projects...... $ 217 $1,598 $ 5,139 $ 6,206 $ 1,863 $ 2,459 $ 2,891
Network Services....... 91 716 3,495 11,184 1,489 5,994 9,869
----- ------ ------- -------- ------- -------- --------
Total revenues......... 308 2,314 8,634 17,390 3,352 8,453 12,760
Cost of revenues
Internet Projects...... 237 1,495 4,699 5,500 1,438 2,056 2,369
Network Services....... 119 866 4,067 8,949 1,747 6,534 9,199
Depreciation and
amortization/(2)/..... 7 171 1,674 2,050 332 1,545 1,675
----- ------ ------- -------- ------- -------- --------
Total cost of
revenues.............. 363 2,532 10,440 16,499 3,517 10,135 13,243
Gross profit (loss)..... (55) (218) (1,806) 891 (165) (1,682) (483)
Operating expenses:
General and
administrative
expenses.............. 263 482 1,576 3,512 655 3,770 3,995
Marketing expenses..... 165 1,188 3,844 5,536 1,608 5,147 6,272
Research and
development........... 179 280 2,941 3,858 821 2,146 2,264
Depreciation and
amortization/(3)/..... 22 116 880 5,011 272 1,228 2,733
----- ------ ------- -------- ------- -------- --------
Total operating
expenses.............. 629 2,066 9,241 17,917 3,356 12,291 15,264
----- ------ ------- -------- ------- -------- --------
Operating loss.......... (684) (2,284) (11,047) (17,026) (3,521) (13,973) (15,747)
Interest income
(expense), net......... (2) (39) (43) (267) (94) 319 272
----- ------ ------- -------- ------- -------- --------
Loss before taxes and
minority interest..... (686) (2,323) (11,090) (17,293) (3,615) (13,654) (15,475)
Income tax benefit..... 402 1,339 6,173 6,753 2,008 5,302 5,258
Minority interest...... -- -- 145 145 -- 103 103
----- ------ ------- -------- ------- -------- --------
Net loss................ $(284) $ (984) $(4,772) $(10,395) $(1,607) $ (8,249) $(10,114)
===== ====== ======= ======== ======= ======== ========
Basic and diluted loss
per share............. $(.12) $ (.12) $ (.30) $ (.64) $ (.11) $ (.44) $ (.53)
===== ====== ======= ======== ======= ======== ========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Six months
Years ended December 31, ended June 30,
---------------------------------- ------------------
Pro forma Pro forma
1996 1997 1998 1998/(1)/ 1999 1999/(1)/
----- ------- ------- --------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Other Financial and
Operating Data:
Number of Network
Services
customers/(4)/......... 166 4,061 6,923 42,391 /(5)/ 10,830 50,724 /(5)/
EBITDA/(6)/............. $(655) $(1,997) $(8,493) $(9,965) $(5,898) $(11,339)
Capital
expenditures/(7)/...... 552 1,708 6,034 8,713 6,587 na
Ratio of earnings to
fixed charges/(8)/..... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
-------------------- -----------------
1996 1997 1998 1998 1999
----- ------ ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficiency)/(9)/............ $ 339 $ 891 $37,751 $(4,065) $(11,562)
Total assets................. 2,211 12,617 79,445 19,569 96,786
Long-term debt/(10)/......... -- 42 1,383 40 1,711
Total stockholders' equity... 1,790 8,908 67,359 8,631 58,046
</TABLE>
- --------
(1) Pro forma statement of operations and balance sheet data are based on the
unaudited Pro Forma Consolidated Financial Statements included elsewhere in
this prospectus. The pro forma balance sheet is based on the historical
balance sheet of the Company and reflects the acquisition of Flashnet and
the Interim Loan incurred to fund such acquisition. The pro forma statement
of loss for the year ended December 31, 1998 is based on the historical
statement of loss adjusted as if the Open:Net, Vianet and Flashnet
acquisitions were completed on January 1, 1998, and the pro forma statement
of loss for the six months ended June 30, 1999 is based on the historical
statements of loss adjusted as if the Flashnet acquisition and the Interim
Loan incurred to fund such acquisition had been completed on January 1,
1999. The pro forma data does not purport to represent what our financial
position or results of operations would have been had these acquisitions
been made on such dates.
(2) Represents depreciation and amortization of capitalized costs related to
investments in product development, designing our network (including
related software) and building network capacity (including related
personnel and consulting costs).
(3) Represents depreciation of property and equipment and amortization of
acquired goodwill.
(4) Number of customers as of December 31, 1996, 1997 and 1998; and March 31,
1999.
(5) Includes 32,652 and 39,894 Flashnet customers (of which 1,096 and 1,625
were business customers and 31,556 and 38,269 were residential customers)
as at December 31, 1998 and March 31, 1999, respectively.
(6) We define EBITDA as loss before interest, income taxes, minority interest,
depreciation and amortization. EBITDA is included because management
believes it is a useful indicator of a company's ability to incur and
service debt. EBITDA should not be considered as a substitute for operating
earnings, net income, cash flow or other statements of operations or cash
flow data computed in accordance with US GAAP or as a measure of our
results of operations or liquidity. Funds depicted by this measure may not
be available for management's discretionary use (due to covenant
restrictions, debt service payments and other commitments). Because all
companies do not calculate EBITDA identically, the presentation of EBITDA
contained herein may not be comparable to other similarly entitled measures
of other companies.
(7) Pro forma capital expenditures for the six months ended June 30, 1999 was
not available.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of losses before income taxes and minority interest, plus fixed
charges. Fixed charges consist of interest expense. Earnings were
insufficient to cover fixed charges by $(684), $(2,284), $(10,893),
$(13,590), $(16,862) and $(15,364) for the years ended December 31, 1996,
1997 and 1998, for the six months ended June 30, 1999, the year ended
December 31, 1998 pro forma and the six months ended June 30, 1999 pro
forma, respectively.
(9) We define working capital as total current assets less total current
liabilities.
(10) Long-term debt includes obligations under capital lease agreements.
17
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RISK FACTORS
You should consider carefully the risks described below and other information
in this prospectus before making an investment decision. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us or that we may currently deem
immaterial may also impair our business operations.
If any of the following events identified in the following risk factors
actually occur, they could materially adversely affect our business, financial
condition and results of operations.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors, including the risks identified below and elsewhere in this prospectus.
See "Information Regarding Forward-Looking Statements."
We Have a History of Losses and Cannot Be Certain We Will Achieve Positive
Cash Flow
For the years ended December 31, 1996, 1997 and 1998, we had net losses
before taxes of $685,627, $2,323,247 and $11,090,260, respectively. For the six
months ended June 30, 1999, we had a net loss before taxes of approximately
$13,654,000. In addition, we had an accumulated deficit of approximately
$14,685,000 as of June 30, 1999. We are likely to continue to incur significant
additional losses in the intermediate term.
Although we have experienced revenue growth on an annual basis, with revenues
increasing from $307,673 to $2,314,021 and to $8,633,528 for the years ended
December 31, 1996, 1997 and 1998, respectively, and increasing from
approximately $3,332,000 to approximately $8,453,000 for the six months ended
June 30, 1998 and 1999, we cannot be certain that revenues will continue at
their current level or will increase in the future.
We have not achieved profitability on a quarterly or annual basis to date. We
anticipate that we will continue to incur significant additional losses in the
intermediate term while we expend substantial amounts on network
infrastructure, sales and marketing and business development. Even thereafter,
we cannot be certain that we will achieve or sustain positive cash flow or
profitability from our operations. Our net losses and negative cash flow from
operating activities are likely to continue even longer than we currently
anticipate if:
. we do not establish and maintain a customer base that generates
sufficient revenue;
. prices for our products or services decline faster than we have
anticipated;
. we do not remain competitive in the innovation and quality of our
products;
. we do not attract and retain qualified personnel;
. we do not reduce our termination costs as we expand our network by
negotiating competitive interconnection rates and peering arrangements;
or
. we do not obtain necessary governmental approvals, rights-of-way and
operator licenses.
Our ability to achieve our objectives is subject to financial, competitive,
regulatory, legal, technical and other factors, many of which are beyond our
control.
Our Limited Operating History Makes it Difficult to Assess Our Past
Performance and Future Prospects
We commenced significant operations in 1996. Accordingly, you have limited
historical operating and financial information on which to base your evaluation
of our performance and our prospects. Moreover, we have acquired six companies
since we commenced significant operations, which limits the comparability of
our operating and financial information from period to period.
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You should consider our prospects in light of the substantial risks,
expenses, uncertainties and difficulties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. Such
risks include the possibility that:
. we will be unable to increase and sustain levels of interest in our
products and services by the small- and medium-sized corporations we are
targeting;
. we will fail to sell our products successfully through our direct sales
force;
. our competitors will develop services or products similar or superior to
our own;
. market prices for our products and services will fall as a result of
competition or other factors;
. we will be unable to identify, attract, motivate and retain qualified
personnel; and
. we will fail to fully integrate with our existing operations the
technology and operations of any of the businesses that we acquire.
As we are currently entering the telecommunications business, you should also
consider the risks that we will fail to, among other things:
. obtain and retain necessary licenses and regulatory approvals to deploy
our network and provide telecommunications services in our target
markets;
. enter into and implement on a timely basis interconnection agreements
with the incumbent operators in our target markets; and
. obtain and use telephone numbers, carrier selection codes and other
rights and privileges necessary to compete effectively.
We cannot be sure that we will be successful in addressing such risks, and
the failure to do so could have a material adverse impact on our business,
financial condition and results of operation and our ability to pay principal
and interest on the Notes when due.
We Are Substantially Leveraged
We have a substantial amount of debt as a result of offering $150 million of
Senior Notes, approximately $50 million of Discount Notes and (Euro) 25 million
of PIK Notes. Subject to restrictions in the Senior Notes Indenture, the
indenture governing the Discount Notes (the "Discount Notes Indenture") and the
indenture governing the PIK Notes (the "PIK Notes Indenture" and collectively
with the Senior Notes Indenture and the Discount Notes Indenture, the
"Indentures"), we may borrow even more money for working capital, capital
expenditures, research and development, acquisitions or other general corporate
purposes. We are considering offering additional debt securities in the future.
The following table shows certain important credit statistics and (i)
reflects the acquisition of Flashnet, and (ii) assumes the completion of the
Unit Offering, the Discount Notes Offering and the PIK Notes Offering as of the
date or at the beginning of the period specified below and applied the net
proceeds of the Unit Offering, the Discount Notes Offering and the PIK Notes
Offering as intended all as of June 30, 1999.
<TABLE>
<CAPTION>
At June 30, 1999
(As Adjusted)
----------------
(in thousands
except ratio)
<S> <C>
Total debt..................................................... $176,879
Stockholders equity............................................ $118,036
Total debt to equity ratio..................................... 1.5x
</TABLE>
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The following table shows interest expense and the excess of fixed charges
over earnings for the six month period ended June 30, 1999 as if the same
events had occurred on January 1, 1999.
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30, 1999
-------------
(in
thousands)
<S> <C>
Interest expense.................................................. $15,658
Excess of fixed charges over earnings............................. $10,003
</TABLE>
Our high level of debt could have important consequences for you. In
particular, some or all of the following factors may reduce the amount of money
available to us to finance our operations and other business activities, or may
place us at a competitive disadvantage:
. a significant portion of the net proceeds of the Unit Offering has been
set aside for the payment of interest on the Notes;
. beginning in the fourth year following issuance of the Units, we will
need to use a large portion of the money earned by our subsidiaries to
pay interest on the Notes and, beginning in the sixth year following
issuance of the Discount Notes and the PIK Notes, we will need to use a
large portion of the money earned by our subsidiaries to pay interest on
the Discount Notes and the PIK Notes;
. we may have difficulty borrowing money in the future for working
capital, capital expenditures, research and development, acquisitions,
implementation of our business strategies or other purposes;
. the covenants included in the Indentures may restrict our ability to
expand or pursue certain business opportunities;
. we may have more indebtedness than certain of our competitors;
. our debt level may reduce our flexibility to adjust rapidly to changing
market conditions, including increased competition in the Internet
services and telecommunications industries;
. our debt level may reduce our ability to invest in new and developing
technologies; and
. our debt level may make us more vulnerable to downturns in general
economic conditions or in our industries and to changing market
conditions and regulations.
We expect to obtain all or most of the money to pay our expenses and to pay
the principal and interest on the Notes, the Discount Notes and the PIK Notes,
except as described in the paragraph below, from the operations of our
subsidiaries. Our ability to meet our obligations thus depends on the future
performance of our subsidiaries. This in turn depends on successful
implementation of our strategy and on financial, business, economic,
competitive, regulatory, technical and other factors. We cannot control many of
these factors, such as economic conditions in the markets where our
subsidiaries operate, pressure from competitors, regulatory developments and
changes in technology.
We cannot be certain that our subsidiaries will earn enough money to allow us
to pay the principal and interest on the Notes, the Discount Notes and the PIK
Notes, and to meet our other obligations. If we do not have enough money to do
so, we may be required to obtain additional equity capital, to refinance all or
part of our existing debt or to borrow more money. Our ability to refinance our
debt or to borrow more money will depend on our financial condition at the
time, the restrictions in the agreements governing our debt and other factors,
including general market and economic conditions. If such additional equity or
debt financing or refinancing is not possible, we could be forced to dispose of
assets at unfavorable prices. In addition, we could default on our obligation
to make payments on the Notes, the Discount Notes or the PIK Notes.
We Must Depend on Our Subsidiaries to Repay Our Debts; Ranking of the Notes,
Discount Notes and PIK Notes and Structural Subordination
Cybernet Delaware intends to loan or contribute a portion of the proceeds of
the Unit Offering, the Discount Notes Offering and the PIK Notes Offering
(collectively, the "Private Offerings") to its subsidiaries. Cybernet
Delaware's cash flow and consequent ability to service its debt obligations, is
dependent upon its ability to receive
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cash from its subsidiaries. Such subsidiaries are separate legal entities and
have no obligation to pay amounts due under the Notes, the Discount Notes and
PIK Notes or to make funds available for such payments. In addition, applicable
law of the jurisdictions in which these subsidiaries are organized or
contractual or other obligations to which they are subject may limit their
ability to pay dividends or make payments on intercompany loans, including
those made with the proceeds of the Private Offerings. All of Cybernet
Delaware's subsidiaries are restricted from paying dividends unless they meet
the statutory financial requirements in their respective jurisdictions of
organization. Vianet does not currently meet the statutory requirements for
payment of dividends and our other subsidiaries may be similarly restricted.
Although the Indentures currently limit the ability of such subsidiaries to
enter into consensual restrictions on their ability to pay dividends and make
other payments, such limitations are subject to a number of significant
qualifications and exceptions and the subsidiaries may agree to such
restrictions in certain circumstances. Furthermore, the payment of interest and
principal on inter-company loans and advances as well as the payment of
dividends by these subsidiaries may be subject to taxes.
The Discount Notes and the PIK Notes are subordinated to all senior
indebtedness of Cybernet Delaware, including indebtedness under the Notes.
Therefore, in the event of bankruptcy, liquidation or reorganization of
Cybernet Delaware, the assets of Cybernet Delaware will be available to pay
obligations on the Discount Notes and the PIK Notes only after all senior
indebtedness has been paid in full. Creditors of Cybernet Delaware's
subsidiaries will have a prior claim to the assets of such subsidiaries before
claims of holders of Cybernet Delaware's indebtedness, including the Notes, the
Discount Notes and the PIK Notes. Accordingly, the Notes, in addition to the
Discount Notes and the PIK Notes, will effectively be subordinated in right of
payment to all existing and future indebtedness and other liabilities,
including trade payables, of these subsidiaries, except to the extent that
Cybernet Delaware is recognized as a creditor as a result of any parent-
subsidiary loans. Cybernet Delaware may, however, contribute, rather than loan,
all of the proceeds of the Private Offerings to its subsidiaries. If Cybernet
Delaware is recognized as a creditor because it has made one or more parent-
subsidiary loans, its claims would still be subordinated with respect to any
assets of the subsidiary pledged to secure other indebtedness and any
indebtedness of such subsidiary senior to that held by Cybernet Delaware.
Moreover, Cybernet Delaware may decide to contractually subordinate some or all
of any proceeds of the Private Offerings that it loans to its subsidiaries. The
subordinated nature of such loans may have an adverse effect on the ability of
our subsidiaries to pay amounts owed and, therefore, on Cybernet Delaware's
ability to make payment on the Notes, the Discount Notes and the PIK Notes. In
addition, in the event of a bankruptcy of one or more of such subsidiaries, we
cannot assure you that any of these inter-company loans will be respected under
applicable bankruptcy law. The bankruptcy laws of the jurisdictions in which
our subsidiaries are organized differ significantly from those applicable in
the United States. Although the Indentures currently limit, the ability of such
subsidiaries to incur indebtedness and to issue preferred stock in the future,
there are certain significant qualifications and exceptions to this limitation.
Accordingly, the subsidiaries may continue to incur a substantial amount of
indebtedness and issue preferred stock under certain circumstances.
The Indentures Contain Restrictive Covenants
Each of the Indentures contains a number of covenants that will impose
significant operating and financial restrictions on us and limit the discretion
of our management with respect to certain business matters. These covenants,
among other things, will limit or prohibit us from incurring additional debt,
making investments, paying dividends to our stockholders, creating liens,
selling assets, engaging in mergers or consolidations, prepaying subordinated
indebtedness, repurchasing or redeeming capital stock, entering into certain
transactions with affiliates and capitalizing on business opportunities.
The limitations in the Indentures are subject to a number of important
qualifications and exceptions. In particular, while the Indentures restrict our
ability to incur additional indebtedness by requiring compliance with a
specified leverage ratio, each nevertheless permits us and our subsidiaries to
incur substantial additional indebtedness to finance the design, development,
construction, acquisition, transportation, installation or integration of
equipment, inventory or network assets used in our business or the acquisition
of capital stock of a company principally engaged in a similar business.
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<PAGE>
Failure to comply with the covenants and restrictions in the Indentures or in
any other financing agreements we may execute could trigger defaults under such
agreements even if we are able to pay our debt. Such defaults could result in a
default on the Notes, the Discount Notes or the PIK Notes and could delay or
preclude payment of principal or interest on the Notes, the Discount Notes or
the PIK Notes.
We Will Need Additional Capital in the Future
As we continue to develop and expand our business and deploy our network, we
will require significant capital to fund our capital expenditures and working
capital needs, as well as our debt service requirements and cash flow deficits.
In particular, we expect to incur significant capital expenditures to make
acquisitions and to lease transmission capacity on a long-term basis, acquire
backbone capacity or construct our own infrastructure in selected locations in
order to transport high bandwidth data and voice services over all available
transmission protocols.
The actual amounts and timing of our future capital requirements may vary
significantly from our estimates. In addition, we continually reevaluate our
business plan in our rapidly changing industry. Accordingly, it is likely that
our plan will change in material respects in the intermediate term. Any such
change could result in a need for additional financing. Our revenues and costs
are dependent on factors that are not within our control, such as advances in
technology, increased competition, regulatory development, fluctuation in
interest or currency exchange rates, the demand for our services and various
factors such as the ability to obtain necessary rights-of-way in constructing
the network. Due to the uncertainty of these factors, our actual revenues and
costs may vary from expected amounts, possibly to a material degree, and such
variations are likely to affect our future capital requirements.
We are considering offering additional debt or equity securities in the
future. We may need to seek even more capital sooner than we expect if:
. our development plans or projections change or prove to be inaccurate;
. we cannot achieve a sufficient customer base and level of traffic;
. cost overruns occur in connection with the development of the network;
. we cannot obtain interconnection agreements as we expand our network;
. technological advances render significant portions of our network
investments obsolete or unprofitable; or
. competition reduces prices of our products or services faster than we
expect.
We intend to evaluate acquisition opportunities and strategic alliances on an
ongoing basis as they arise and we may require additional financing if we elect
to pursue any such opportunities. Such additional financing may not be
available on acceptable terms or at all. Moreover, our substantial indebtedness
as a result of the Private Offerings and other possible future debt financings
may adversely affect our ability to raise additional funds. An inability to
obtain financing could require us to delay or abandon plans for parts of our
network, acquisition opportunities, or strategic alliances.
We May Have Difficulty Establishing and Maintaining Interconnection Agreements
and Peering Relationships
If the incumbent operators deny us interconnection or fail to grant us
interconnection for sufficient capacity on acceptable terms, we will have to
use refile or resale agreements to terminate such traffic through other
carriers that have interconnection arrangements with those incumbent operators.
Termination through refile or resale agreements is significantly more expensive
than termination through our own interconnection and could render our services
noncompetitive.
22
<PAGE>
If we are unable to preserve our existing peering arrangements or to obtain
additional ones, this could increase our costs, and limit our ability to
compete effectively with other European IP backbone providers that have better
peering arrangements. The dominance of national ISPs is driving industry
peering practice. The basis on which large national ISPs make peering available
is becoming more limited as the provision of Internet access and related
services expands. Recently, companies that previously offered peering have cut
back by establishing new, more restrictive criteria for peering or have
eliminated peering relationships entirely.
We have negotiated peering arrangements with several IP backbone providers
and several European ISPs. If increasing requirements associated with
maintaining peering with these ISPs develop, we may have to comply with those
additional requirements in order to continue these peering relationships.
Our ability to obtain and maintain peering arrangements with other European
ISPs and with United States ISPs is critical to our ability to exchange traffic
with those ISPs without having to pay transit costs. However, we cannot be
certain that we will be able to negotiate additional peer status with United
States ISPs or with European IP backbone providers or that we will be able to
terminate traffic on their networks at favorable prices. In particular, major
United States ISPs require almost all European ISPs and IP backbone providers
to pay a transit fee to exchange traffic.
We Are Dependent on Our Key Personnel
Our success depends upon the continued efforts of our senior management team
and our technical, marketing and sales personnel. Such employees may
voluntarily terminate their employment with us at any time. We maintain no key
man life insurance policies. Our success also depends on our ability to
attract, train, retain and motivate additional highly skilled and qualified
managerial, technical, marketing and sales personnel. Competition for qualified
employees and personnel in the Internet and telecommunications industries in
Europe is intense. Only a limited number of persons have the required knowledge
and experience in the particular sectors and countries in which we operate. The
process of hiring employees with the combination of skills and attributes
required to carry out our strategy can be extremely challenging and time-
consuming. We cannot assure you that we will be able to retain existing
personnel or to identify and hire new qualified personnel. If we were to lose
the services of our key personnel or were unable to attract additional
qualified personnel, this could materially adversely affect our business,
financial condition and results of operations.
We Are Dependent on Our Suppliers
We are dependent on third-party suppliers for our leased-line connections and
bandwidth. Info AG, a potential competitor, and Deutsche Telekom, a competitor,
are our primary providers of network and switching capacity. We also depend
upon telecommunications carriers, which are often our competitors, to provide
telecommunications services and lease physical space to us for routers, modems
and other equipment. We have few long-term contracts with such suppliers. Most
of these suppliers are not subject to any contractual restrictions that
prohibit them from competing with us. Moreover, any failure or delay of any
network provider to deliver bandwidth to us or to provide operations,
maintenance and other services with respect to such bandwidth on a timely or
adequate basis could adversely affect us. If these suppliers change their
pricing structures, we may be adversely affected.
We are also dependent on certain third-party suppliers of hardware
components. Although we attempt to maintain a number of vendors for each
product, certain components which we use in providing our network services are
currently available from only one source. For example, routers are currently
available only from Cisco. A failure by a supplier to deliver quality products
to us on a timely basis or our inability to develop alternate sources if and as
required could result in delays which could have a material adverse effect on
us. Moreover, we cannot be sure that we will be able to obtain such supplies on
the scale we require at an affordable cost or at all. Neither can we be certain
that our suppliers will not enter into
23
<PAGE>
exclusive arrangements with our competitors or stop selling their products or
components to us at commercially reasonable prices or at all. Any failure of
our sole or limited-source suppliers to provide products or components that
comply with its standards could have a material adverse effect on us. Our
remedies against suppliers who fail to deliver products to us on a timely basis
are restricted by contractual liability limitations in supply agreements and
purchase orders and, in many cases, by practical considerations relating to our
desire to maintain good relationships with suppliers. Finally, as our suppliers
revise and upgrade their equipment technology, we may encounter difficulties in
integrating the new technology into our network.
We Are Subject to Risks as We Make Acquisitions and Engage in Strategic
Alliances
As part of our business strategy, we may acquire, make investments in, or
enter into strategic alliances with companies in complementary businesses, so
as to optimize our market presence in the regions we presently serve and expand
into other European countries. Any such future acquisitions, investments or
strategic alliances would involve risks, such as
. incorrect assessment of the value, strengths and weaknesses of
acquisition and investment opportunities;
. underestimating the difficulty of integrating the operations and
personnel of newly acquired companies;
. the potential disruption of our ongoing business, including possible
diversions of resources and management time;
. the potential inability to maintain uniform standards, controls,
procedures and policies; and
. the threat of impairing relationships with employees and customers as a
result of changes in management or ownership.
We cannot assure you that we will be successful in overcoming these risks.
Moreover, we cannot be certain that any desired acquisition, investment or
strategic alliance could be made in a timely manner or on terms and conditions
acceptable to us. Neither can we assure that we will be successful in
identifying attractive acquisition candidates. We expect that competition for
such acquisitions may be significant. Competition for Internet companies is
based on a number of factors including price, terms and conditions, size,
access to capital, and ability to offer cash, stock or other forms of
consideration. We may compete with other companies with similar acquisition
strategies, many of which may be larger and have greater financial and other
resources than we have.
An additional risk associated with acquisitions is that many attractive
acquisition candidates do not have audited financial statements and have
varying degrees of internal controls. Although we may believe that the
available financial information for a particular business is reliable, we
cannot guarantee that a subsequent audit would not reveal matters of
significance, including with respect to liabilities, contingent or otherwise.
We expect that, from time to time in the future, we will enter into acquisition
agreements, the pro forma effect of which is not known and cannot be predicted.
Our completion of such acquisitions may have a material impact on the financial
information set forth in this prospectus.
We have recently acquired or agreed to acquire a number of Internet-related
companies. Certain of these companies incurred net losses prior to their
acquisition. We believe that after eliminating redundant network architecture
and administrative functions and further integrating the operations of these
companies with our own, we will be able to realize cost savings on our
consolidated operations. However, we cannot assure you that our integration of
the operations of these companies will be accomplished successfully. Our
inability to improve the operating performance of these companies or to
integrate successfully their businesses could have a material adverse effect on
us.
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<PAGE>
We May Have Difficulty Managing Our Rapid Growth
Our growth strategy has placed and will continue to place a significant
strain on our customer support, sales and marketing, administrative resources,
network and operations and management and billing systems. Such a strain on our
administrative and operational capabilities could adversely affect the quality
of our services and our ability to collect revenues. To manage our growth
effectively, we will have to enhance further the efficiency of our operational
support, other back office systems and financial systems and controls and
expenditures on administrative expenses. Management is currently in the process
of addressing certain weaknesses in our systems of internal controls, which
have been identified by our auditors, and in our customer support services. We
have also recently undertaken measures to address inefficiencies in the control
of our administrative expenditures. We cannot assure you that we will be able
to develop and maintain adequate internal operating, administrative and
financial systems, and procedures and controls or that measures undertaken or
to be undertaken to reduce administrative expenses as a percentage of total
revenues will in fact result in such reductions.
Managing our growth will become even more challenging as we expand our target
markets and our product and service offerings. We believe that establishing and
maintaining brand identity for our products and services is a critical aspect
of attracting and expanding our customer base. Promotion and enhancement of our
brands will depend largely on our success in continuing to provide high quality
Internet communications services, solution and product support. We cannot
guarantee that we will be able to maintain those levels of quality. If we are
unable to do so or otherwise fail to promote and maintain our brands, or if we
incur excessive expenses in an attempt to improve our services or promote and
maintain our brands, then our business, results of operations and financial
condition could be materially and adversely affected.
In addition, as we continue to grow we will have to expand and train our
employee base to handle the increased volume and complexities of our business.
We cannot assure you that we will be able to attract, train and manage
sufficient personnel to keep pace with our growth.
We Have Experienced Difficulties in Collecting Certain Accounts Receivable
We have recently experienced difficulties in collecting some of our accounts
receivable, primarily at Cybernet AG and at Flashnet. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Working Capital." We have instituted various
measures which we expect will facilitate collection of these receivables,
including realignment of sales force compensation schemes, pre-contract credit
evaluations for both business and residential customers and assignment of
direct responsibility to managers at the subsidiary level for reductions in
receivables balances. However, we cannot assure you that these or other
measures we may take will result in a reduction in receivables balances or that
we will not continue to experience such collection difficulties in the future.
Our inability successfully to collect on such accounts may have a material
adverse impact on our business, results of operations and financial condition.
We Are Subject to Risks as a Result of the International Scope of Our
Operations
We may face certain risks because we conduct an international business
including:
. regulatory restrictions or prohibitions on the provision of our
services;
. tariffs and other trade barriers;
. difficulties in staffing and managing foreign operations;
. longer payment cycles;
. problems in collecting accounts receivable;
. political risks; and
. potentially adverse tax consequences of operating in multiple
jurisdictions, including the imposition or increase in withholding taxes
on remittances and other payments by subsidiaries.
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<PAGE>
We cannot assure you that such factors will not have an adverse effect on our
future operations and, consequently, on our business, financial condition and
results of operations. In addition, an adverse change in laws or administrative
practices in countries within which we operate could have a material adverse
effect on us.
We Are Subject to Foreign Exchange Rate Risks
The proceeds from the Unit Offering and the Discount Notes Offering were in
United States dollars, but many of the costs and expenses of implementing our
business strategies will be in Euros and, to a lesser extent, in Swiss Francs.
Therefore, the extent to which we can apply such proceeds to these costs and
expenses will be subject to currency exchange rate fluctuations.
The principal and interest due on the Notes and the Discount Notes is payable
in United States dollars. However, our revenues will largely be in Euros and,
to a lesser extent, in Swiss Francs. Accordingly, our ability to pay the
interest and principal when due on the Notes and the Discount Notes will be
dependent to a significant extent on the future exchange rate of the Euro
against the United States dollar.
We May Not Have the Financial Resources to Repurchase the Notes, the Discount
Notes or the PIK Notes as Required on a Change of Control
Upon the occurrence of a change of control (as defined in the Indentures), we
will be required to make an offer to purchase all of the outstanding Notes,
Discount Notes and PIK Notes at a price equal to 101% of the accreted value or
principal amount, as applicable, of the Notes, Discount Notes and PIK Notes,
plus accrued and unpaid interest, if any, to the date of repurchase. In such an
event, we cannot be certain that we would have sufficient assets to satisfy our
obligations under the Notes, Discount Notes and PIK Notes and any other
indebtedness then outstanding. Our failure to repurchase the Notes, Discount
Notes and PIK Notes upon a change of control due to inadequate financial
resources in such instance would result in a default under the Indentures.
There Are Questions About Certain Actions Taken by Our Predecessor
In 1996, the good standing of our predecessor, Cybernet Utah, was revoked by
the State of Utah for failure to pay excise taxes. This occurred prior to any
transaction with Cybernet AG and at a time when the predecessor company had
officers, directors and management who, with the exception of one individual,
are and were unaffiliated with our officers, directors and management. In 1997,
the State of Utah reinstated our predecessor company's good standing, based
upon certain actions which were taken by its Board of Directors. These actions
were taken without prior approval of shareholders but were ratified by
shareholders before consummation of the transaction with Cybernet AG. There is
a degree of uncertainty as to whether the shareholders' subsequent ratification
suffices to authorize the actions of the predecessor's Board of Directors. We
believe it is unlikely that anyone would challenge these actions of our
predecessor company and our legal counsel has advised us that, even if someone
did, such actions are unlikely to be properly attributable to us, the successor
company, and such actions are unlikely to give anyone the ability to
successfully pursue a remedy against us, in each case in such a way as to have
a material adverse effect on us. Nevertheless, we cannot assure you that such a
challenge will not be made and, if successful, that it would not have a
material adverse effect on our business, results of operations and financial
condition.
There Are Questions About Service of Process and Enforcement of Judgments
We are a Delaware corporation maintaining a registered agent in Delaware, and
process may be served at the address of the registered agent. However, most of
our assets are located outside the United States. Most of our officers and
directors are not residents of the United States, and a substantial portion of
their assets is located outside the United States. As a result, it may not be
possible for investors to effect service of process in the United States upon
such non-resident officers and directors or to enforce in jurisdictions outside
the United
26
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States judgments obtained against us or our directors and officers. This
applies to any action, including civil actions based on the United States
federal securities laws. In addition, awards for punitive damages in actions
brought in the United States or elsewhere may be unenforceable in Germany.
There May be Questions About Our Status Under German Law
We are a Delaware corporation in good standing the existence of which is
legally recognized under state and federal law in the United States. Since
incorporating in Delaware in November 1998, our Board of Directors has included
a United States resident and we have held shareholders' and directors' meetings
in the United States. In May 1999, we established an office in the United
States and elected a United States resident as our Secretary and a United
States citizen as our Chief Financial Officer. However, most of our day-to-day
activities have been managed from Europe and we did not maintain a United
States office before May 1999. The possibility exists that a German court might
view precedents so as to refuse to recognize our existence as a United States
corporation in the period between our November 1998 incorporation and the
establishment of our United States office on the grounds that we were required
to maintain more contact with the United States during that period. If such a
challenge to our status as a United States corporation were successfully
brought under German law, contracts into which we entered during that period
might be void and Cybernet might be treated as if it were a general partnership
under German law. Acting for and on behalf of Cybernet, our management could be
held personally liable for our actions and liabilities and may, as a
consequence, be entitled to be indemnified by Cybernet. We have been advised by
our German counsel that our contacts with the United States were sufficient at
all times and that it is likely that a German court would conclude that we were
at all times recognizable as a Delaware corporation under German law. However,
the possibility exists that a German court might read certain precedents to the
contrary. We cannot assure you that such a challenge to our status under German
law would not be made or that, if made, such challenge would not be successful.
The implications of a successful challenge are uncertain but would likely have
a material adverse effect on our business, results of operations and financial
condition.
Sales of Shares by Our Shareholders Could Depress Our Stock Price.
The market price of our common stock could drop as a result of sales of a
large number of our shares or warrants or a substantial amount of our
convertible debt securities in the public market after the Exchange Offer and
after registration of our convertible debt securities. The perception that such
sales may occur could have the same effect. The price of the Notes would also
likely be adversely affected by decreases in the price of our common stock.
As of August 2, 1999, our executive officers and directors owned, directly or
indirectly, approximately 9% of our common stock and approximately 17% of our
Series A Non-Voting Preferred Stock. Our Series A Non-Voting Preferred Stock is
convertible in various amounts over time into common stock and all of it is
convertible by January 1, 2001. In addition, executive officers and directors
hold options to purchase an aggregate of 300,000 shares of common stock
exercisable starting on December 28, 1999. Assuming conversion of all these
shares and exercise of all these warrants, these officers and directors would
hold approximately 11.14% of our common stock.
In addition, Holger Timm owns, either directly or indirectly through a
company controlled by him, shares of common stock, Series A Non-Voting
Preferred Stock and Series B Voting Preferred Stock which in the aggregate and
assuming conversion of all the Series A Non-Voting Preferred Stock into Voting
Stock, would constitute approximately 27% of our voting shares.
One Shareholder Controls a Large Block of Cybernet Stock and His Interests May
Conflict with Yours
Holger Timm, a former director of Cybernet who resigned on December 2, 1998,
directly or indirectly, holds approximately 10.9% of the common stock of
Cybernet, 100% of the Series B Voting Preferred Stock and 58.1% of the Series A
Non-Voting Preferred Stock, which is convertible, over time, into our common
stock. As a result, assuming conversion of all the Series A Non-Voting
Preferred Stock into Voting Stock,
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Mr. Timm would hold approximately 27% of our voting shares. Mr. Timm is the
controlling shareholder and an executive officer of the company which owns 40%
of the investment bank which served as the underwriter in our December 1998
public offering of common stock, for which services such investment bank
received approximately $3 million in fees. Mr. Timm is also a principal
stockholder and executive officer of one of our customers, Cybermind, which is
itself a principal stockholder of the Company. Mr. Timm has the power to
influence actions requiring stockholder approval (including amendments to our
Certificate of Incorporation and By-laws and approving mergers and sales of all
or substantially all of our assets). We can offer no assurance that the
interests of Mr. Timm will not conflict with your interests. See "Stock
Ownership of Principal Beneficial Owners and Management."
We Are Subject to Certain Anti-Takeover Provisions Which May Delay or Prevent
a Change of Control
Certain provisions of the Delaware General Corporation Law (the "DGCL") and
our Certificate of Incorporation and By-Laws may delay, discourage or prevent a
future takeover or change in control of Cybernet unless such takeover or change
in control is approved by our Board of Directors. Such provisions may also make
the removal of directors and management more difficult, may discourage bids for
our common stock at a premium over the market price and may adversely affect
the market price, the voting and other rights of the holders of our common
stock.
In particular, we are subject to the anti-takeover provisions of Section 203
of the DGCL, which prohibits us from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which such person became an interested stockholder, unless the
business combination is approved in a prescribed manner.
In addition, our Certificate of Incorporation provides that the Board of
Directors must be divided into three classes of directors serving staggered
terms and that all stockholder actions must be effected at a duly called
meeting and not by written consent. Either of these provisions could have the
effect of discouraging a third party from making a tender offer or otherwise
attempting to gain control of Cybernet. Our Certificate of Incorporation also
places certain restrictions on who may call a special meeting of stockholders.
In addition, our Board of Directors has the authority to issue up to
50,000,000 shares of undesignated preferred stock, of which 4,793,440 shares
were issued and outstanding at August 2, 1999, and to determine the price,
rights, preferences, and privileges of those shares without any further vote or
actions by the stockholders. The rights of the holders of our common stock are
subject to, and may be adversely affected by, the rights of all present and any
future holders of preferred stock. The issuance of additional shares of
preferred stock may provide desirable flexibility in connection with possible
acquisitions and may serve other corporate purposes but such issuance could
make it more difficult for a third party to acquire a majority of the
outstanding voting stock of Cybernet.
The Internet Services Market Is New and Uncertain and It May Be Difficult to
Retain Customers
The market for Internet connectivity services and related software products
and services is in an early stage of growth, particularly in the European
markets in which we operate. As a consequence, current and future competitors
are likely to introduce competing Internet connectivity services, online
services and products, and it is difficult to predict the rate at which the
market will grow or at which new or increased competition will result in market
saturation. For example, certain companies have recently introduced free
Internet access services in support of their other product and service
offerings. If demand for Internet services fails to grow, or grows more slowly
than anticipated, our business, results of operations and financial condition
could be materially adversely affected.
The immature nature of the market for Internet access services may also
adversely affect our ability to retain new customers, as customers may
discontinue our services after an initial trial period. During each fiscal
period we typically acquire new customers for our products and services, while
seeking to renew service
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agreements with existing customers. The sales and marketing expenses associated
with attracting new customers are substantial. Our ability to improve operating
margins will depend, in significant part, on our ability to retain customers.
While we continue to invest significant resources in our telecommunication
infrastructure and customer support resources, we cannot be certain that these
investments will improve customer retention. Since the Internet market is new
and the utility of available services is not well understood by many new and
potential customers, we are unable to predict future customer retention rates.
Any deterioration in customer retention rates or increased costs associated
with retaining customers could have a material adverse effect on our business,
results of operations and financial condition.
We Are Dependent on the Internet
Our products and services are targeted toward users of the Internet, which
has experienced rapid growth. Evolving industry standards, frequent new product
and service introductions and demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty, as
is typical in the case of a new and rapidly evolving industry characterized by
quickly changing technology. While we believe that Europeans will adopt this
new technology with the same enthusiasm that the people in the United States
have, we cannot be certain that the European market will develop to the same
extent.
In addition, critical issues concerning the commercial use of the Internet
remain unresolved and may impact the growth of Internet use, especially in the
business and geographic markets we target. Despite growing interest in the many
commercial uses of the Internet, many businesses have been deterred from
purchasing Internet access services for a number of reasons, including, among
others:
. lack of availability of cost-effective, high-speed options;
. inconsistent quality of service;
. a limited number of local access points for corporate users;
. inability to integrate business applications on the Internet;
. the need to deal with multiple and frequently incompatible vendors;
. inadequate protection of the confidentiality of stored data and
information moving across the Internet; and
. a lack of tools to simplify Internet access and use.
In particular, a perceived lack of security of commercial data, such as
credit card numbers, has significantly impeded commercial exploitation of the
Internet to date, and we cannot be certain that encryption or other
technologies will be developed to satisfactorily address these security
concerns. Capacity constraints caused by growth in the use of the Internet may
also, unless resolved, impede further expansion in the use of the Internet to
the extent that users experience delays, transmission errors and other
difficulties. Further, the adoption of the Internet for commerce and
communications replaces more established means of communication and requires
the understanding and acceptance of a new way of conducting business and
exchanging information. Some businesses may be unwilling to commit themselves
to learning this new way of conducting business until it is proved.
We Are Subject to Security and Fraud Risks
Despite our efforts to implement network security measures, such as limiting
physical and network access to our routers, our Internet infrastructure is
vulnerable to computer viruses, break-ins and similar disruptive problems
caused by customers, employees or other Internet users. Computer viruses,
break-ins or other disruptive or security problems could lead to interruptions,
delays or cessation in service to our Internet customers. Further, such
inappropriate or unauthorized use of the Internet could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers and other parties connected to the Internet, which may
deter potential customers and give rise to uncertain liability to users
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whose security or privacy has been violated. The security and privacy concerns
of existing and potential customers may inhibit the growth of the Internet
service industry in general and our customer base and revenues in particular. A
significant security breach could result in a loss of customers, damage to our
reputation, direct damages, costs of repair and detection and other expenses.
In addition, our revenues for any given period may be adversely affected by
fraud or debt collection problems that we experience. The occurrence of any of
the foregoing events could have a material adverse effect on our business,
results of operations and financial condition.
We May Be Hurt by System Failures
Our success is largely dependent upon our ability to deliver high speed,
uninterrupted access to the Internet. Any system failure that causes
interruptions in our operations could have a material adverse effect on us. Our
telecommunications network is carried primarily on lines leased from Deutsche
Telekom. Failures in this or any other telecommunications network we rely on
would result in customers' receiving no or diminished access to the Internet.
We also currently lease the properties where our POPs are located. Any
relocation that may be required as a result of expired or changing lease terms
may result in increased costs or temporary disruption of service. We seek to
upgrade our POPs regularly to reduce congestion and improve efficiency.
However, any such future difficulties could cause a loss of customers or slow
the growth of new customers and could, therefore, have a material adverse
effect on our business, results of operations and financial condition.
Our operations are dependent on our ability to protect our computer equipment
and the information stored in its data centers, access nodes and POPs against
damage by fire, natural disaster, power loss, telecommunications failures,
unauthorized invasion and other catastrophic events. We believe we have taken
appropriate measures to reduce the risk of interruption in our operations.
However, we cannot assure you that these measures are sufficient. Any damage or
failure that causes interruptions in our operations could have a material
adverse effect on our business, results of operations and financial condition.
We Could Be Held Liable for Information Disseminated Over Our Network
The law relating to liability of ISPs for information and materials carried
on or disseminated through their networks is not completely settled. A number
of lawsuits have sought to impose such liability for material deemed to be
socially harmful. In particular, one lower court in Germany, where we presently
have the majority of our operations, recently found the manager of an ISP
liable for the contents of materials transmitted after the ISP failed to remove
the offending material from its news-server, despite requests from government
authorities. The law relating to the regulation and liability of information
carried or disseminated by ISPs is also undergoing a process of development in
other European countries.
The possibility that courts could impose liability for information or
material carried on or disseminated through our network could require us to
take measures to reduce our exposure to such liability. Such measures may
require us to spend substantial resources or to discontinue certain product or
service offerings. Any of these actions could have a material adverse effect on
our business, operating results and financial condition.
Due to the increasing use of the Internet, it is possible that additional
laws and regulations may be adopted with respect to the Internet covering
issues such as user privacy, pricing, taxes, defamation, obscurity,
intellectual property protection, consumer protection technology export and
other controls. Changes in the regulatory environment relating to the Internet
services industry, including regulatory changes that directly or indirectly
affect telecommunication costs or increase the likelihood or scope of
competition, could have a material adverse effect on our business, results of
operations and financial condition.
We Are Subject to Regulation
Currently, few laws or regulations are directly applicable to activities or
commerce on the Internet. However, a number of legislative and regulatory
proposals are under consideration and may be adopted in various jurisdictions
with respect to issues such as Internet user privacy, infringement, pricing,
taxes, quality of
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products and services and intellectual property rights. It is uncertain how
existing laws will be applied to the Internet in areas such as intellectual
property (including copyrights, trademarks and trade secrets), obscenity and
defamation. The adoption of new laws or the adaptation of existing laws to the
Internet may decrease the growth in the use of the Internet, which could in
turn decrease the demand for our products and services, increase our cost of
doing business or otherwise have a material adverse effect on our business,
result of operations and financial condition.
The European telecommunications industry, which we plan to enter, is subject
to a significant degree of regulation. Our ability to operate networks and
provide services in Germany, Austria, Italy and Switzerland is dependent upon
our ability to obtain appropriate licenses, registrations and other
authorizations or permissions from governmental authorities in each
jurisdiction in which we operate and on those licenses and other authorizations
remaining in force. Such licenses generally contain clauses pursuant to which
we may be fined or our license may be revoked in certain circumstances. Such
revocation may be on very short notice. The revocation of any of our licenses
would force us to stop operating in the relevant country. In some cases, the
licenses we receive may be of fixed duration and we must comply with
regulations and technical requirements prescribed by the jurisdiction in which
we obtained such licenses in order to maintain them. We have no guarantees that
we will be able to obtain, maintain or renew the licenses, authorizations and
registrations we need to provide telecommunications services or that such
licenses and other authorizations will be issued or renewed on terms or with
fees that are commercially viable. The loss, or substantial limitations of, or
the failure to obtain, licenses, authorizations or registrations could have a
material adverse effect on our business.
The recent liberalization of the European telecommunications market, induced
by legislation of the European Union ("EU") and the introduction of the World
Trade Organization Basic Telecom Agreement, has significantly reduced the
regulatory barriers to entry in the markets in which we operate or intend to
operate. However, national regulatory frameworks which are fully consistent
with the policies and requirements of the EU and the World Trade Organization
have only recently been, or are still being, implemented in certain EU member
states and Switzerland, respectively. These nations are in the early stages of
providing for and adapting to a liberalized telecommunications market. As a
result, in these markets, we and other new entrants may encounter more
protracted and difficult procedures to obtain licenses and negotiate
interconnection agreements. We cannot assure you that further alterations to
the regulatory frameworks, which may place our operations and competitive
position at a disadvantage, will not be made in the future. In particular,
German regulatory authorities have indicated to Deutsche Telekom, the dominant
telecommunications provider in Germany, that it will be allowed to take
additional costs into account when determining fees, subject to regulatory
approval. Although the regulatory authority denied Deutsche Telekom's first
application for higher prices on the basis that Deutsche Telekom had not
demonstrated higher costs, we cannot assure you that the regulatory authorities
will continue to reach such conclusions in the future. We also cannot assure
you that such fees, which tend to be favorable for new entrants providing long
distance and international voice telephony services, will remain at their
current levels. See also "Business--Regulation."
Many of the countries in which we intend to establish facilities and provide
services lack the level of experience the United States has with regulation of
a competitive telecommunications market. In Germany and many of the other
Western European countries in which we operate or intend to operate the markets
for public switched services were virtually closed to competition until January
1, 1998. Prior to that time, few entities other than the incumbent operators
had the right to provide public voice telephony services or installed public
networks. As a result, few pro-competitive regulations and regulators existed
to enforce laws and regulations against the incumbent operators. The limited
experience of legislators, regulators and courts with the implementing of a
competitive regulatory regime, combined with continued full or partial
government ownership of the incumbent operators, as discussed below, could slow
or even undermine the movement to competitive telecommunications markets in
these countries.
As a result, we may be incorrect in our assumptions that:
. each European country where we intend to establish networks and provide
services will enact and enforce, on a timely basis, the measures
necessary to ensure that new entrants such as Cybernet can compete
fairly with the incumbent operators; and
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. we will be allowed to provide and expand our services in these European
countries as set forth in our business plans.
We cannot assure you, with respect to any country in which we operate or plan
to operate, that future changes in the law, regulation, or government will not
have a material adverse effect on Cybernet.
We Are Subject to Intellectual Property Risks
Legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights in Internet-related industries are
uncertain and still evolving, and we cannot be certain as to the future
viability or value of any of our intellectual property rights or those of other
companies within the IT industry. We cannot assure you that the steps we have
taken to protect our intellectual property rights will be adequate or that
third parties will not infringe or misappropriate our proprietary rights. Any
such infringement or misappropriation, should it occur, could have a material
adverse effect on our business, results of operations and financial condition.
Furthermore, we cannot be certain that our business activities will not
infringe the proprietary rights of others or that such other parties will not
assert infringement claims against us. We anticipate that we may be subject to
claims in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties due to the dissemination of our content or the provision of access by
our online services to content made available by third parties. Such claims and
any resultant litigation, should it occur, could subject us to significant
liability for damages and could result in invalidation of our proprietary
rights and, even if not meritorious, could be time-consuming and expensive to
defend, and could result in the diversion of management time and attention, any
of which could have a material adverse effect on our business, results of
operations and financial condition.
We regard substantial elements of our products and services as proprietary
and we attempt to protect them by relying on trademark, service mark, trade
dress, copyright and trade secret laws and restrictions on disclosure and
transfer of title. We also enter into confidentiality agreements with our
employees, suppliers, distributors, consultants, vendors and customers and
license agreements with third parties and generally seek to control access to
and distribution of our technology, documentation and other proprietary
information. We are pursuing the registration of our service marks in the EU
but we currently have no patents or applications for patents pending for our
products or services. Effective service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are distributed or made available. We cannot assure you that the steps
we have taken to protect our proprietary rights will be adequate or that third
parties will not infringe or misappropriate our copyrights, service marks,
trade dress and similar proprietary rights.
We Are Dependent on Our Billing and Information Systems
As we add additional services, sophisticated back office information and
processing systems become more and more vital to our growth and our ability to:
. manage and monitor traffic along our network;
. track service provisioning, traffic faults and repairs;
. effect least cost routing;
. achieve operating efficiencies;
. monitor costs;
. bill and receive payments from customers; and
. reduce credit exposure.
We have purchased from Kenan Systems ("Kenan") a new billing system which we
have installed and are integrating into our German operations and which we are
beginning to implement in Italy. We cannot
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assure you that this system will be successfully implemented on a timely basis
or at all, or that it will perform as expected. We also cannot assure you that
this transition will not cause delays or interruptions in our monitoring and
billing activities.
The billing system we are acquiring will require enhancements and ongoing
investments, particularly as traffic volume increases. We may encounter
difficulties in enhancing our systems or integrating new technology into our
systems in a timely and cost-effective manner. Implementation of that system in
Germany did cause some delay in our processing of customer invoices and we
cannot assure that its implementation in other countries will not cause similar
delays. Such difficulties could have a material adverse effect on our ability
to operate efficiently and provide adequate customer service.
We Are Subject to Risks Associated with Converting to the Euro
On January 1, 1999, 11 of the 15 EU member 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 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 this 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. Any of the
above could have a material adverse effect on us and our ability to make
payments under the Notes, the Discount Notes and the PIK Notes.
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 operations and our ability to meet
our obligations under the Notes, the Discount Notes and the PIK Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Conversion to the Euro."
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We Are Subject to Certain Risks Associated with the Year 2000
The Year 2000 problem results from the fact that many existing computer
programs and systems have used 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 recently completed, or are in the process of completing, a number of
acquisitions and have therefore had less of an opportunity to identify and
address any Year 2000 issues such companies may have.
Although we have taken significant steps to identify and remedy the Year 2000
problem, we cannot assure you that our operations will not be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000."
We Are Subject to the Risks Associated with Rapid Industry Changes
Changes in the Internet Services Industry
The Internet services industry in which we operate is characterized by
rapidly changing technology, evolving industry standards, emerging competition
and frequent new service, software and other product innovations. We cannot
guarantee that we will be able to identify new service opportunities
successfully and develop and bring new products and services to market in a
timely and cost-effective manner, or that products, software and services or
technologies developed by others will not render our products and services non-
competitive or obsolete. In addition, we cannot provide any assurance that our
product or service developments or enhancements will achieve or sustain market
acceptance or be able to address effectively the compatibility and
interoperability issues raised by technological changes or new industry
standards.
As Internet-related industries evolve, we may be required to develop or
acquire additional technological capabilities. In particular, there is
substantial uncertainty as to the transmission media for future ISPs.
Currently, we provide access to Internet services primarily through analog
telephone lines and ISDN lines. Several companies have recently introduced, on
an experimental basis, delivery of Internet access services through cable
television lines. If the Internet becomes accessible by cable modem, or if
screen based telephones, television or other consumer electronic devices or
customer requirements change the way Internet access is provided, we will need
to develop new services or modify our existing services to accommodate these
developments. This pursuit of technological advances may require substantial
time and expense and we cannot be certain that we will succeed in adapting our
business to handle such requirements. Failure to do so could have a material
adverse effect on our business, results of operations and financial condition.
Changes in the Telecommunications Industry
The European telecommunications industry which we are entering is also
changing rapidly due to, among other factors:
. market liberalization;
. continuing privatization of incumbent operators;
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. significant technological advancements;
. introductions of new products and services utilizing new technologies;
. increased availability of transmission capacity;
. expansion of telecommunications infrastructure;
. increased use of the Internet for voice and data transmission; and
. the globalization of economies and trade.
These factors are likely to continue to affect our markets and may have
unforeseen effects which could have a material adverse effect on us. In
particular, if the continued growth we anticipate in the demand for voice and
IP services were not to occur or we were precluded from servicing this
anticipated demand, we might not be able to generate sufficient revenues in the
next few years to fund our working capital requirements. Even if these factors
turn out as anticipated, we cannot be sure that our strategy will be successful
in this rapidly evolving market. In addition, further changes may happen at any
time that could significantly affect our operations.
Our success will depend substantially on our ability to predict which of the
many possible current and future networks, products and services will be
important to finance, establish and maintain. In particular, as we further
expand and develop our network, we will become increasingly exposed to the
risks associated with the relative effectiveness of our technology and
equipment. The cost of implementation of emerging and future technologies could
be significant, and we cannot be certain that we will select appropriate
technology and equipment or that we will obtain such new technology on a timely
basis or on satisfactory terms. We may choose new technologies that prove to be
inadequate or incompatible with technologies of our customers, providers of
transmission capacity or other carriers. As new technologies develop, we may be
forced to implement such new technologies at substantial cost to remain
competitive. In addition, competitors may implement new technologies before we
do, allowing such competitors to provide lower priced or enhanced services and
superior quality compared to those we provide. The failure to obtain effective
technology and equipment may hinder our ability to provide competitive products
and services, and may adversely affect the viability of our operations and
could have a material adverse impact on our business.
The Markets in Which We Operate Are Highly Competitive
Competition in the Internet Services Market
The Internet services market is extremely competitive and we expect
competition in this market to intensify in the future. We believe that our
ability to compete successfully depends on a number of factors including:
. our market presence;
. our image and reputation;
. our technical expertise;
. the capacity, reliability, latency and security of our network
infrastructure;
. the functionality, performance and quality of our services;
. our ability to provide customization and customer support;
. the variety of services we offer;
. the pricing and quality of products and services offered by competitors
and suppliers;
. the timing of our introductions of new products and services and of
those of our competitors;
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. our ability to support industry standards; and
. industry and general economic trends.
Many new start-up businesses as well as existing businesses in different
industries have been drawn by the tremendous growth and potential market size
of the Internet services market. Our current and prospective competitors
include:
. ISPs such as European Computer Industry Research Centre, Xlink, PSInet,
UUNet Technologies, EUnet and Nacamar in Germany; EUnet Multimedia
Network Services, Netway Austria and Cybertron in Austria; and I-Net in
Italy; as well as numerous smaller, regional ISPs in each country;
. established online services such as America Online and CompuServe;
. major systems integrators and computer manufacturers such as Andersen
Consulting and IBM;
. telecommunications companies such as Mannesmann Arcor, Deutsche Telekom
and Viag Interkom in Germany; Telekom Austria and United Telecom Austria
in Austria; and Infostrada, Telecom Italia and Wind in Italy;
. cable operators such as Deutsche Telekom and Primacom; and
. value-added resellers of computer, network and peripheral equipment.
Many of these current and prospective competitors have greater market
presence, engineering and marketing capabilities, brand recognition and
financial, technological, personnel and other resources than we do. As a
result, such competitors may be able to develop and expand their communications
and network infrastructures more quickly, to adapt more swiftly to new or
emerging technologies and changes in customer requirements, to take advantage
of acquisition and other opportunities more readily, and to devote greater
resources to the marketing and sale of their products and services than we can.
Prices for IP services are currently relatively high in Europe. However, the
U.S. market for IP services has been experiencing downward pressure on prices
and certain companies have recently introduced free Internet access services in
Europe in support of their other product and service offerings. As competition
increases, we anticipate comparable price decreases in the European IP market
over the next few years. As a result of an increase in the number of
competitors, and vertical and horizontal integration in the industry, we
currently encounter and expect to continue to encounter significant pricing
pressure. We cannot be certain that we will be able to offset the adverse
effect on revenues of any necessary price reductions by increasing the number
of our customers, generating higher revenue from enhanced services, reducing
costs or otherwise. We cannot assure you that IP service prices will not
decline more quickly than our IP transmission or termination costs. If this
were to occur, it could have a material adverse effect on our gross profit
margins.
Competition affects not only the price of our products and services but also
our ability to attract and retain effective, knowledgeable salespeople.
Furthermore, advances in technology as well as changes in the marketplace and
the regulatory environment occur constantly and we cannot predict the effect
that ongoing or future developments may have on us or on the pricing of our
products and services. In addition, we believe that Internet access services
businesses are likely to encounter consolidation in the near future, which
could result in increased price and other competition. This could result in an
erosion of our market share and could prevent us from becoming profitable. In
summary, we cannot be certain that we will have the financial resources,
technical expertise or marketing and support capabilities to compete
successfully in the Internet services market.
Competition in the European Telecommunications Market
Competition in the European telecommunications market, which we are entering,
is intense and is based primarily on price. The opening of the market to
alternative operators, combined with technological advances, has resulted in
significant reductions in retail and wholesale prices for voice services.
Prices declined significantly during 1998 and we expect prices to continue to
decline. While decreasing prices fuel growing demand for bandwidth, they
36
<PAGE>
also narrow gross profit margins on long distance voice traffic. Our ability to
compete successfully in this environment will significantly depend on our
ability to generate high traffic volumes from our customers while keeping our
cost of services low. We cannot assure you that we will be able to do this.
In all of the countries in which Cybernet currently offers its services we
compete with the incumbent operators (Deutsche Telekom in Germany, Austria
Telecom in Austria, Telecom Italia in Italy and Swisscom in Switzerland ). In
all of these countries, the incumbent operators virtually control all access to
local networks and have significant operational economies, including a large
national network and existing operating agreements with other incumbent
operators.
Many of our competitors have greater financial resources and would be in a
better position than we would be to withstand the adverse effect on gross
profit margins caused by price decreases, particularly those competitors that
already own infrastructure and have interconnection or peering arrangements and
thus enjoy a lower cost base than we do. Unless and until we are able to reduce
our cost base, we may not be able to compete on the basis of price if market
prices are reduced below a certain level. Inability to price our services
competitively may in turn cause us to lose customers.
There Is No Established Market for the Notes
The Notes are a new issue of securities for which there is currently no
trading market. We cannot assure you as to:
. the liquidity of any market for the Notes that may develop;
. your ability as a holder of the Notes to sell the Notes; or
. the price at which you would be able to sell any of your Notes.
The initial purchasers of the Senior Notes have advised us that they intend
to make a market in the Notes. The initial purchasers are not obligated,
however, to make a market, and any such market-making may be discontinued at
any time at the sole discretion of the initial purchasers and without notice.
Moreover, the liquidity of the trading market in the Notes may be adversely
affected by changes in the overall market for high-yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry in general. Accordingly, we cannot assure you as to
the development or liquidity of any market for the Notes. If a market for any
of such securities were to develop, they could trade at prices that may be
higher or lower than those reflected by their offering price depending on many
factors, including prevailing interest rates, our operating results and the
market for similar securities. Historically, the market for such securities has
been subject to disruptions that have caused substantial volatility in the
prices of similar securities. If a market for the Notes were to develop, we
cannot be certain that such a market would not be subject to similar
disruptions.
Dilution
At June 30, 1999, the net tangible book value of our common stock was $0.95
per share. After giving effect to the Private Offerings, and assuming that all
Warrants offered in the Unit Offering were exercised at June 30, 1999 at an
exercise price per share of $22.278, and that all notes offered in the Discount
Notes Offering and in the PIK Notes Offering were converted at June 30, 1999 at
the conversion price of $25.00, the adjusted pro forma net tangible book value
per share would have been $6.71 as of June 30, 1999.
We Do Not Expect to Pay Dividends
The Company does not anticipate paying cash dividends in the foreseeable
future. See "Price Range of Common Stock and Dividend Policy."
37
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. In consideration for issuing the Exchange Notes contemplated
herein, we will receive in exchange Outstanding Notes in like principal amount.
The Outstanding Notes surrendered in exchange for the Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any change in the Indebtedness (as defined on
page 127) of our Company.
The net proceeds from the Unit Offering were approximately $144,800,000,
after deducting underwriting discounts and commissions and estimated fees and
expenses. We used $57,466,076 of the net proceeds to purchase the U.S.
Government Securities which have been pledged with the collateral agent to
assure payment of the first six interest payments on the Notes. We also used
$22,374,264 to repay the Company's Interim Loan. We plan to use the remaining
net proceeds of approximately $65 million for capital expenditures and general
corporate purposes. The net proceeds from the Discount Notes Offering and the
PIC Notes Offering were approximately $47,000,000 and (Euro)23,000,000,
respectively.
Although we intend to use the proceeds of the Private Offerings for capital
expenditures and general corporate purposes, the amount of proceeds to be
applied for various purposes is likely to change as our current plans and the
assumption underlying them change or prove to be inaccurate. For example, we
may determine to use a portion of the proceeds to acquire companies that are
complementary to our business, although we currently have no formal commitments
or agreements to do so. Accordingly, we can provide no assurance that the
remaining net proceeds of the Unit Offering will be applied for capital
expenditures and general corporate purposes.
Pending utilization of the remaining net proceeds of the Unit Offering, we
intend to invest such proceeds in short-term investment grade securities and
other financial instruments.
38
<PAGE>
EXCHANGE RATE INFORMATION
The following tables set forth, for the periods indicated, certain
information concerning the Noon Buying Rate for Deutsche Marks, Italian Lire,
Austrian Schillings and Euro, expressed in Deutsche Marks, Italian Lire,
Austrian Schillings and Euro, respectively, per dollar. Such rates are provided
solely for the convenience of the reader and should not be construed as a
representation that Deutsche Marks, Italian Lire, Austrian Schillings or Euro
amounts actually represent such dollar amounts or that such Deutsche Marks,
Italian Lire, Austrian Schillings or Euro amounts could have been, or could be,
converted into dollars at that rate or at any other rate. We did not use such
rates in the preparation of the combined financial statements of the Company
included elsewhere in this prospectus. On the tables for the Deutsche Mark,
Italian Lira and Austrian Schilling, the columns entitled "Average Rate"
represent the average Noon Buying Rates on the last business day of each month
during the relevant period. As of January 1, 1999, the Deutsche Mark, the
Italian Lira and the Austrian Schilling began trading at fixed rates against
the Euro.
<TABLE>
<CAPTION>
Deutsche Mark Exchange Rate Average Period-
Year Ended December 31, Rate High Low End Rate
- --------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1995........................................ 1.4261 1.5612 1.3565 1.4345
1996........................................ 1.5070 1.5655 1.4354 1.5387
1997........................................ 1.7394 1.8810 1.5413 1.7991
1998........................................ 1.7588 1.8542 1.6060 1.6670
<CAPTION>
Italian Lira Exchange Rate Average Period-
Year Ended December 31, Rate High Low End Rate
- -------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1995........................................ 1,628.95 1,736.25 1,569.00 1,584.00
1996........................................ 1,538.37 1,602.00 1,496.00 1,519.00
1997........................................ 1,712.15 1,840.75 1,515.70 1,769.00
1998........................................ 1,737.19 1,827.60 1,592.00 1,654.00
<CAPTION>
Austrian Schilling Exchange Rate Average Period-
Year Ended December 31, Rate High Low End Rate
- -------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1995........................................ 9.8733 10.9845 9.5903 10.0810
1996........................................ 10.6002 11.0070 10.1000 10.8340
1997........................................ 12.2386 13.2330 10.8400 12.6340
1998........................................ 12.1940 13.0160 11.3230 11.6040
<CAPTION>
Euro Exchange Rate Period-
Month End 1999(a) High Low End Rate
- ------------------ -------- -------- --------
<S> <C> <C> <C> <C>
January 31........................................... 0.8794 0.8466 0.8794
February 28.......................................... 0.9114 0.8819 0.9095
March 31............................................. 0.9332 0.9079 0.9252
April 30............................................. 0.9466 0.9223 0.9466
May 28............................................... 0.9595 0.9270 0.9595
June 30.............................................. 0.9713 0.9509 0.9699
July 31.............................................. 0.9863 0.9329 0.9351
August 31............................................ 0.9607 0.9239 0.9486
September 30......................................... 0.9684 0.9361 0.9389
</TABLE>
- --------
(a) On August 3, 1999, the Noon Buying Rate was $1.00 = (Euro)0.9363 and the
Euro was fixed to the Deutsche Mark at (Euro)1.00 = DM 1.9558, to the
Italian Lira at (Euro)1.00 = Lit. 1,936.27 and to the Austrian Schilling at
(Euro)1.00 = ATS 13.7603.
39
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Price Range Of Common Stock
Our common stock is traded on the OTC Bulletin Board under the symbol "ZNET"
and on the Neuer Markt of the Frankfurt Stock Exchange under the Symbol "CYN."
Our common stock also trades on the Freiverkehr of the Berlin and Munich Stock
Exchanges under the securities identification number WP-Kenn-Nr. 906 623. Our
principal foreign trading market is the Neuer Markt. As of August 2, 1999, the
Company had 169 registered stockholders of record. The closing price of the
common stock on the OTC Bulletin Board and the Neuer Markt on August 18, 1999
was $17.1875 per share and (Euro)17.0000 per share, respectively.
The following tables set forth for the periods indicated the high and low bid
prices for the common stock as reported each quarterly period in 1997 and 1998
and each monthly period in 1999 on the OTC Bulletin Board and the Neuer Markt.
The prices are inter-dealer prices, do not include retail mark up, mark down or
commission and may not necessarily represent actual transactions.
otc bulletin board
<TABLE>
<CAPTION>
High Low
1997 ------------ ------------
<S> <C> <C>
Third Quarter(/1/)............................ $ 11.250 $ 9.310
Fourth Quarter................................ $ 16.250 $ 7.750
<CAPTION>
High Low
1998 ------------ ------------
<S> <C> <C>
First Quarter................................. $ 34.500 $ 11.500
Second Quarter................................ $ 28.750 $ 20.000
Third Quarter................................. $ 29.875 $ 18.000
Fourth Quarter................................ $ 37.250 $ 13.000
<CAPTION>
High Low
1999 ------------ ------------
<S> <C> <C>
January....................................... $ 47.000 $ 29.625
February...................................... $ 43.875 $ 33.500
March......................................... $ 36.000 $ 26.500
April......................................... $ 27.750 $ 23.000
May........................................... $ 24.000 $ 20.000
June.......................................... $ 20.000 $ 16.000
July.......................................... $21.750 $14.500
August........................................ $ 18.000 $ 14.000
September..................................... $ 20.875 $ 14.250
- --------
(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.
neuer markt of the frankfurt stock exchange
<CAPTION>
High Low
1998 ------------ ------------
<S> <C> <C>
Fourth Quarter (beginning December 9, 1998)... (Euro)33.029 (Euro)24.900
<CAPTION>
High Low
1999 ------------ ------------
<S> <C> <C>
January....................................... (Euro)41.200 (Euro)26.600
February...................................... (Euro)39.900 (Euro)31.400
March......................................... (Euro)32.500 (Euro)24.500
April......................................... (Euro)24.700 (Euro)21.650
May........................................... (Euro)23.400 (Euro)20.300
June.......................................... (Euro)19.500 (Euro)16.400
July.......................................... (Euro)19.800 (Euro)14.200
August........................................ (Euro)17.450 (Euro)13.300
September..................................... (Euro)19.400 (Euro)14.800
</TABLE>
Dividend Policy
The Company has never paid dividends on its common stock.
40
<PAGE>
THE EXCHANGE OFFER
General
In connection with the Unit Offering, we entered into a registration rights
agreement with the initial purchasers, Lehman Brothers International (Europe)
and Morgan Stanley & Co. International Limited and agreed to (i) file within 90
days, and use our best efforts to cause to be declared effective within 150
days, of the date of the original issuance of the Outstanding Notes a
registration statement of which this prospectus is a part with respect to a
registered offer to exchange the Outstanding Notes for the Exchange Notes with
terms substantially identical in all material respects to the Outstanding
Notes, and (ii) use our reasonable best efforts to cause the Exchange Offer to
be consummated on or before 30 days after the date on which the registration
statement is declared effective by the Securities and Exchange Commission.
In the event that (i) we are not permitted to file the registration statement
or to consummate the Exchange Offer on account of changes in law or the
applicable interpretations of the Staff of the Commission, (ii) any holder that
is a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) notifies our Company at least 20 business days prior to the
consummation of the Exchange Offer that (a) applicable law or Commission policy
prohibits us from participating in the Exchange Offer, (b) such holder may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and that this prospectus is not appropriate or
available for such resales by such holder, or (c) such holder is a broker-
dealer and holds Notes acquired directly from us or one of our affiliates,
(iii) the Exchange Offer is not for any other reason consummated within 180
days after the original issuance of the Outstanding Notes, (iv) any holder
(other than a broker-dealer that is the beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer
in the Exchange Offer) is not eligible to participate in the Exchange Offer, or
in the case of any holder that participates in the Exchange offer, such holder
does not receive Exchange Notes on the date of the exchange that may be sold
without restriction under federal securities laws (other than due solely to the
status of such holder as an affiliate of our Company within the meaning of the
Securities Act or due to the requirement that such holder deliver a copy of
this prospectus in connection with any resale of the Exchange Notes), or (v)
the Exchange Offer has been completed and in the opinion of counsel for the
initial purchasers a registration statement must be filed and a prospectus must
be delivered by the initial purchasers in connection with any offering or sale
of "Transfer Restricted Securities" (as defined in the registration rights
agreement), then we will use our best efforts to file, within 90 days of the
earliest to occur of the preceding events, a shelf registration statement
pursuant to the Securities Act with respect to the resale of the Outstanding
Notes and to keep the shelf registration statement effective until the second
anniversary (unless extended pursuant to the terms of the registration rights
agreement) of the issuance of the Outstanding Notes.
In the event that (i) neither the registration statement of which this
prospectus is a part nor the shelf registration statement is filed with the
Commission on or prior to the 90th day following the date of original issuance
of the Outstanding Notes, (ii) neither the registration statement nor the shelf
registration statement is declared effective on or prior to the 150th day
following the date of original issuance of the Outstanding Notes, (iii) the
Exchange Offer is not consummated on or before 30 days after the 150th day
following the date of original issuance of the Outstanding Notes, or (iv) (a)
the registration statement is filed and declared effective but thereafter,
ceases to be effective or fails to be usable for its intended purpose at any
time prior to the time that the Exchange Offer is consummated and is not
declared effective within 5 business days thereafter, or (b) the shelf
registration statement is filed and declared effective but thereafter ceases to
be effective or fails to be usable for its intended purpose at any time during
the period ending on the second anniversary of the issuance of the Outstanding
Notes (unless extended pursuant to the terms of the registration rights
agreement) and is not declared effective again within five business days
thereafter, the interest rate borne by the Outstanding Notes shall be increased
by one-half of one percent per annum following such 90-day period in the case
of clause (i) above, following such 150-day period in the case of clause (ii)
above, following such 30-day period in the case of clause (iii) above, or
commencing on the day the applicable registration statement ceases to be
effective or usable for its intended purpose without being declared effective
again within 5 business days
41
<PAGE>
in the case of clause (iv) above. The aggregate amount of such increase from
the original interest rate pursuant to these provisions will in no event exceed
1.5 percent per annum. Upon (w) the filing of the registration statement or the
shelf registration statement for the Exchange Offer after the 90-day period
described in clause (i) above, (x) the effectiveness of the registration
statement or shelf registration statement after the 150-day period described in
clause (ii) above, (y) the consummation of the Exchange Offer after the 30-day
period described in clause (iii) above, or (z) the effectiveness or usability
of the registration statement which had ceased to remain effective or be
usable, or the effectiveness or usability of the shelf registration statement
which had ceased to remain effective or be usable, the interest rate borne by
the Outstanding Notes from the date of such filing, effectiveness, usability or
the day before the date of consummation, as the case may be, will be reduced to
the original interest rate if we are otherwise in compliance with such
requirements.
Upon the terms and subject to the conditions set forth in this prospectus and
in the accompanying letter of transmittal, we will accept all Outstanding Notes
validly tendered prior to 5:00 p.m., New York City time, on the expiration
date. We will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of Outstanding Notes accepted in the Exchange
Offer. Holders may tender some or all of their Outstanding Notes pursuant to
the Exchange Offer in denominations of $1,000 and integral multiples thereof.
Based on no-action letters issued by the Staff of the Commission to third
parties, we believe that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for Outstanding Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other than (i) a broker-dealer who
purchased such Outstanding Notes directly from us to resell pursuant to Rule
144A or any other available exemption under the Securities Act, or (ii) a
person that is an "affiliate" (as such term is defined in Rule 405 of the
Securities Act) of our Company) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that the
holder is acquiring the Exchange Notes in its ordinary course of business and
is not participating and does not intend to participate, and has no
arrangements or understanding with any person to participate, in the
distribution of the Exchange Notes. Holders of Outstanding Notes wishing to
accept the Exchange Offer must represent to us that such conditions have been
met.
Each broker-dealer that receives Exchange Notes in exchange for Outstanding
Notes held for its own account, as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. The letter of transmittal states that by so acknowledging and
by delivering a prospectus, such broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
prospectus, as it may be amended or supplemented from time to time, may be used
by such broker-dealer in connection with resales of Exchange Notes received in
exchange for Outstanding Notes. We have agreed that, for a period of 180 days
after the consummation of the Exchange Offer, we will make this prospectus and
any amendment or supplement to this prospectus available to any such broker-
dealer for use in connection with any such resale. See "Plan of Distribution."
As of the date of this prospectus, $150 million aggregate principal amount of
the Outstanding Notes is outstanding. In connection with the issuance of the
Outstanding Notes, we arranged for the Outstanding Notes initially purchased by
qualified institutional buyers to be issued and transferable in book-entry form
through the facilities of DTC, acting as depositary. The Exchange Notes will
also be issuable and transferable in book-entry form through DTC.
This prospectus, together with an accompanying letter of transmittal, is
being sent to all registered holders as of October 7, 1999.
We shall be deemed to have accepted validly tendered Outstanding Notes when,
as and if we have given oral or written notice thereof to the exchange agent.
See "--Exchange Agent." The exchange agent will act as agent for the tendering
holders of Outstanding Notes for the purpose of receiving Exchange Notes from
us and delivering Exchange Notes to such holders.
42
<PAGE>
If any tendered Outstanding Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Outstanding Notes will be returned,
without expenses, to the tendering holder thereof as promptly as practicable
after the expiration date.
Holders of Outstanding Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" shall mean November 8, 1999 unless we, in our sole
discretion, extend the Exchange Offer, in which case the term "expiration date"
shall mean the latest date to which the Exchange Offer is extended.
In order to extend the expiration date, we will notify the exchange agent of
any extension by oral or written notice and will mail to the record holders of
Outstanding Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date. Such announcement may state that we are extending the Exchange Offer for
a specified period of time.
We reserve the right (i) to delay acceptance of any Outstanding Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Outstanding Notes not previously accepted, if any of the conditions set
forth herein under "--Termination" shall have occurred and shall not have been
waived by us (if permitted to be waived by us), by giving oral or written
notice of such delay, extension or termination to the exchange agent, and (ii)
to amend the terms of the Exchange Offer in any manner deemed by us to be
advantageous to the holders of the Outstanding Notes. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof. If the Exchange Offer is amended
in a manner determined by us to constitute a material change, we will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of the Outstanding Notes of such amendment.
Without limiting the manner by which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the Exchange Offer, we shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
Interest on the Exchange Notes
The Exchange Notes will bear interest from July 8, 1999, payable semiannually
on January 1 and July 1 of each year commencing on January 1, 2000, at the rate
of 14.0% per annum. Holders of Outstanding Notes whose Outstanding Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Outstanding Notes accrued from July 8,
1999 until the date of the issuance of the Exchange Notes. Consequently,
holders who exchange their Outstanding Notes for Exchange Notes will receive
the same interest payment on January 1, 2000 (the first interest payment date
with respect to the Outstanding Notes and the Exchange Notes) that they would
have received had they not accepted the Exchange Offer.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the letter of transmittal, and deliver such letter of
transmittal or such facsimile, together with the Outstanding Notes (unless such
43
<PAGE>
tender is being effected pursuant to the procedure for book-entry transfer
described below) and any other required documents, to the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Outstanding Notes by
causing DTC to transfer such Outstanding Notes into the exchange agent's
account in accordance with DTC's Automated Tender Offer Program.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Outstanding Notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal.
Delivery of all documents must be made to the exchange agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Outstanding Notes and the letters of transmittal
and all other required documents to the exchange agent is at the election and
risk of the holders. Instead of delivery by mail, it is recommended that
holders use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure timely delivery. No letter of transmittal or
Outstanding Notes should be sent to us.
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Outstanding Notes are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose Outstanding Notes are held of record by DTC who
desires to deliver such Outstanding Notes by book-entry transfer at DTC.
Any beneficial holder whose Outstanding Notes are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial holder
wishes to tender on his own behalf, such beneficial holder must, prior to
completing and executing the letter of transmittal and delivering his
Outstanding Notes, either make appropriate arrangements to register ownership
of the Outstanding Notes in such holder's name or obtain a properly completed
bond power from the registered holder. The transfer of record ownership may
take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, unless the Outstanding Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or (ii) for the account of an
eligible institution.
If the letter of transmittal is signed by a person other than the registered
holder of any Outstanding Notes listed therein, such Outstanding Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Outstanding Notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders appears on the
Outstanding Notes.
44
<PAGE>
If the letter of transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by
us, evidence satisfactory to us of their authority to so act must be submitted
with the letter of transmittal.
All the questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Outstanding Notes will be
determined by us in our sole discretion, which determinations will be final and
binding. We reserve the absolute right to reject any and all Outstanding Notes
not validly tendered or any Outstanding Notes of which our acceptance would, in
the opinion of our counsel, be unlawful. We also reserve the absolute right to
waive any irregularities or conditions of tender as to particular Outstanding
Notes. Our interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
we shall determine. Neither our Company, the exchange agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Outstanding Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Outstanding Notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the exchange agent to the tendering holder of such Outstanding Notes unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In addition, we reserve the right in our sole discretion to (a) purchase or
make offers for any Outstanding Notes that remain outstanding subsequent to the
expiration date, or, as set forth under "--Termination," to terminate the
Exchange Offer, and (b) to the extent permitted by applicable law, purchase
Outstanding Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the Exchange Offer.
By tendering, each holder of Outstanding Notes will represent to us that,
among other things, the Exchange Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such Exchange Notes, whether or not such person is the holder, that neither the
holder nor any other person has an arrangement or understanding with any person
to participate in the distribution of the Exchange Notes and that neither the
holder nor any such other person is an "affiliate" (as such term is defined in
Rule 405 of the Securities Act) of our Company.
Guaranteed Delivery Procedures
Holders who wish to tender their Outstanding Notes and (i) whose Outstanding
Notes are not immediately available, or (ii) who cannot deliver their
Outstanding Notes, the letter of transmittal, or any other required documents
to the exchange agent prior to the expiration date, or if such holder cannot
complete the procedure for book-entry transfer on a timely basis, may effect a
tender if:
(a) the tender is made through an eligible institution;
(b) prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed "notice of
guaranteed delivery" in the form accompanying this prospectus (by facsimile
transmission, mail or hand delivery) or a properly transmitted agent's
message setting forth the name and address of the holder of the Outstanding
Notes, the certificate number or numbers of such Outstanding Notes and the
principal amount of Outstanding Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within five business days after
the expiration date, the letter of transmittal (or facsimile thereof),
together with the certificate(s) representing the Outstanding Notes to be
tendered in proper form for transfer or a book-entry confirmation and any
other documents required by the letter of transmittal, will be deposited by
the eligible institution with the exchange agent; and
45
<PAGE>
(c) such properly completed and executed letter of transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Outstanding Notes in proper form for transfer (or confirmation of
a book-entry transfer into the exchange agent's account at DTC of
Outstanding Notes delivered electronically) and all other documents
required by the letter of transmittal are received by the exchange agent
within five business days after the expiration date.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date unless previously accepted for exchange.
To withdraw a tender of Outstanding Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein or holders must comply with the
appropriate procedures of DTC's Automated Tender Offer Program System prior to
5:00 p.m., New York City time, on the expiration date and prior to acceptance
for exchange thereof by us. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Outstanding Notes to be withdrawn, (ii)
identify the Outstanding Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Outstanding Notes), (iii) be
signed by the person depositing the Outstanding Notes in the same manner as the
original signature on the letter of transmittal by which such Outstanding Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfers sufficient to permit the trustee with respect to the
Outstanding Notes to register the transfer of such Outstanding Notes into the
name of the depositor withdrawing the tender, and (iv) specify the name in
which any such Outstanding Notes are to be registered, if different from that
of the depositor. If the Outstanding Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawn Outstanding Notes and otherwise comply with the procedures of the
facility. All questions as to the validity, form and eligibility (including
time of receipt) for such withdrawal notices will be determined by us, and our
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Outstanding Notes so withdrawn are validly tendered. Any Outstanding
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder or in the case of
Outstanding Notes tendered by book-entry transfer into the exchange agent's
account at DTC according to the procedures described above, those Outstanding
Notes will be credited to an account maintained with DTC for Outstanding Notes.
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Outstanding Notes may be tendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time prior to the expiration date.
Termination
Notwithstanding any other term of the Exchange Offer, we will not be required
to accept for exchange, or exchange Exchange Notes for, any Outstanding Notes
not therefore accepted for exchange, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of such Outstanding Notes if:
(i) any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer, which, in
our reasonable judgment, might materially impair our ability to proceed with
the Exchange Offer, or (ii) any law, statute, rule or regulation is proposed,
adopted or enacted, or any existing law, statute, rule or regulation is
interpreted by the Staff of the Commission or court of competent jurisdiction
in a manner, which, in our reasonable judgment, might materially impair our
ability to proceed with the Exchange Offer.
If we determine that we may terminate the Exchange Offer, as set forth above,
we may (i) refuse to accept any Outstanding Notes and return any Outstanding
Notes that have been tendered to the holders thereof, (ii) extend the Exchange
Offer and retain all Outstanding Notes tendered prior to the expiration of the
46
<PAGE>
Exchange Offer, subject to the rights of such holders of tendered Outstanding
Notes to withdraw their tendered Outstanding Notes, or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Outstanding Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, we will disclose such
change by means of a supplement to this prospectus that will be distributed to
each registered holder of Outstanding Notes, and we will extend the Exchange
Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Outstanding Notes, if the Exchange Offer would otherwise expire
during such period.
Exchange Agent
The Bank of New York, the trustee under the Senior Notes Indenture, has been
appointed as exchange agent for the Exchange Offer. Questions and requests for
assistance and requests for additional copies of this prospectus or of the
letter of transmittal should be directed to the exchange agent addressed as
follows:
The Bank of New York
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile Transmission: By Hand or Overnight Delivery:
The Bank of New York (212) 815-6339 The Bank of New York
101 Barclay Street 101 Barclay Street, Ground Level
Floor 7 East Corporation Trust Services Window
New York, New York 10286 By Telephone: New York, New York 10286
Attention: Enrique Lopez (212) 815-2742 Attention: Enrique Lopez
Reorganization Section Reorganization Section
</TABLE>
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by us. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail. Additional solicitations may be made by officers
and regular employees of our Company and our affiliates in person, by telegraph
or telephone.
We will not make any payments to brokers, dealers or other persons soliciting
acceptances of the Exchange Offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection therewith. We may
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
prospectus, letters of transmittal and related documents to the beneficial
owners of the Outstanding Notes and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the exchange agent and trustee and accounting and legal
fees, will be paid by us.
We will pay all transfer taxes, if any, applicable to the exchange of
Outstanding Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Outstanding Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holder of the Outstanding Notes tendered, or if tendered Outstanding Notes are
registered in the name of any person other than the person signing the letter
of transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Outstanding Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other person) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
47
<PAGE>
CAPITALIZATION
The following table sets forth our cash and capitalization as of June 30,
1999 (i) on an actual basis, and (ii) as adjusted as if the Unit Offering had
occurred on such date and the maintenance of the net proceeds received from the
Unit Offering (other than the portion thereof used to repay the Interim Loan)
as cash pending application of the proceeds as contemplated in the Unit
Offering offering memorandum and to give effect to the offering of the
$50,002,183 Discount Notes and, the (Euro)25,000,000 PIK Notes, as if they had
occurred on such date and the maintenance of the net proceeds received from the
Discount Notes Offering and the PIK Notes Offering as cash pending application
as described in "Use of Proceeds." See "Description of Material Indebtedness."
This table should be read in conjunction with the Consolidated Financial
Statements and notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Use of Proceeds" included
elsewhere in this prospectus. Other than as described herein, there has been no
material change in the capitalization of the Company since June 30, 1999.
<TABLE>
<CAPTION>
At June 30, 1999
------------------------------
As adjusted
for the
Acquisitions,
the Unit
Offering, the
Notes
Actual Offerings
-------- -------------
<S> <C> <C> <C>
Cash:
Cash and restricted cash......................... $ 14,974 $223,357(/1/)
======== ========
Debt:
Overdrafts and short-term borrowings............. 23,018 644
Current Portion long-term debt and capital lease
obligations..................................... 1,173 1,173
Long-term debt................................. 104 104
Capital lease obligations...................... 1,316 1,316
Notes offered in Unit Offering(/2/)............ -- 96,940
Notes offered in August 19, 1999 Discount Notes
Offering...................................... -- 35,000
PIK Notes...................................... 26,700
Notes offered in the August 23, 1999 Discount
Notes Offering................................ -- 15,002
-------- --------
Total debt................................... $ 25,611 $176,879
-------- --------
Shareholders Equity:
Common Stock $.001 par value, 50,000,000 shares
authorized, 20,729,988 issued and
outstanding................................... $ 21 $ 21
Preferred stock $.001 par value, 50,000,000
shares authorized, 6,360,000 shares issued and
outstanding................................... 5 5
Warrants(/2/).................................. -- 53,060
Additional paid in capital..................... 79,335 86,265
Accumulated deficit............................ (14,685) (14,685)
Cumulative translation adjustment.............. (6,630) (6,630)
-------- --------
Total shareholders equity.................... $ 58,046 $118,036
-------- --------
Total Capitalization......................... $ 83,657 $294,915
======== ========
</TABLE>
- --------
(1) Reflects the approximate net proceeds of the Unit Offering of $144,500 less
the $22,374 thereof used to repay the Interim Loan. Restricted cash
reflects $57,466 of the net proceeds of the Unit Offering used to purchase
U.S. Government Securities and fund the first six scheduled interest
payments on the Senior Notes. Also reflects the estimated net proceeds of
$72,361 from the Discount Notes Offering and the PIK Notes Offering.
(2) Approximately $53,060 has been allocated to the Warrants based on a
valuation using the Black-Scholes Option Valuation model.
48
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data as of and for the years ended
December 31, 1996, 1997, and 1998, set forth below, is derived from our audited
Consolidated Financial Statements included elsewhere in this prospectus. The
selected consolidated financial data as of and for the six months ended June
30, 1998 and 1999 set forth below, is derived from our unaudited Interim
Financial Statements included elsewhere in this prospectus. The pro forma
consolidated financial data for the year ended December 31, 1998 and as of and
for the six months ended June 30, 1999, set forth below, is derived from our
unaudited Pro Forma Consolidated Financial Statements included elsewhere in
this prospectus. The financial data set forth below has been prepared in
accordance with US GAAP. The unaudited Interim Financial Statements included in
this prospectus include all adjustments, consisting of normal recurring
adjustments, that management considers necessary for a fair presentation of the
financial position and results of operations for the interim periods.
The information set forth below should be read in conjunction with our
audited Consolidated Financial Statements, our unaudited Interim Financial
Statements and our unaudited Pro Forma Consolidated Financial Statements, and
the related notes thereto included elsewhere in this prospectus. Historical and
pro forma results of operations presented herein are not necessarily indicative
of results of operations for future periods. Our development and expansion
activities, including acquisitions, during the periods set forth below
significantly affect the comparability of this information from one period to
another. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
Years ended December 31, Six months ended June 30,
---------------------------------- ----------------------------
Pro forma Pro forma
1996 1997 1998 1998 /(1)/ 1998 1999 1999 /(1)/
----- ------ ------- ---------- ------- ------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue
Internet Projects...... $ 217 $1,598 $ 5,139 $ 6,206 $ 1,863 $ 2,459 $ 2,891
Network Services....... 91 716 3,495 11,184 1,489 5,994 9,869
----- ------ ------- ------- ------- ------- --------
Total revenue.......... 308 2,314 8,634 17,390 3,352 8,453 12,760
Cost of revenues
Internet Projects...... 237 1,495 4,699 5,500 1,438 2,056 2,369
Network Services....... 119 866 4,067 8,949 1,747 6,534 9,199
Depreciation and
amortization /(2)/.... 7 171 1,674 2,050 332 1,545 1,675
----- ------ ------- ------- ------- ------- --------
Total cost of
revenues.............. 363 2,532 10,440 16,499 3,517 10,135 13,243
Gross profit (loss)..... (55) (218) (1,806) 891 (165) (1,682) (483)
Operating expenses:
General and
administrative
expenses.............. 263 482 1,576 3,512 695 3,770 3,995
Marketing expenses..... 165 1,188 3,844 5,536 1,608 5,147 6,272
Research and
development........... 179 280 2,941 3,858 821 2,146 2,264
Depreciation and
amortization /(3)/.... 22 116 880 5,011 272 1,228 2,733
----- ------ ------- ------- ------- ------- --------
Total operating
expenses.............. 629 2,066 9,241 17,917 3,356 12,291 15,264
----- ------ ------- ------- ------- ------- --------
Operating loss.......... (684) (2,284) (11,047) (17,026) (3,521) (13,973) (15,747)
Interest income
(expense), net......... (2) (39) (43) (267) (94) 319 272
----- ------ ------- ------- ------- ------- --------
Loss before taxes and
minority interest..... (686) (2,323) (11,090) (17,293) (3,615) (13,654) (15,475)
Income tax benefit..... 402 1,339 6,173 6,753 2,008 5,302 5,258
Minority interest...... -- -- 145 145 -- 103 103
----- ------ ------- ------- ------- ------- --------
Net loss................ $(284) $ (984) $(4,772) (10,395) $(1,607) $(8,249) $(10,114)
===== ====== ======= ======= ======= ======= ========
Basic and diluted loss
per share............. $(.12) $ (.12) $ (.30) $ (.64) $ (.11) $ (.44) $ (.53)
===== ====== ======= ======= ======= ======= ========
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Six months ended
Years ended December 31, June 30,
----------------------------------- -------------------
Pro forma Pro forma
1996 1997 1998 1998 /(1)/ 1999 1999 (/1/)
----- ------- ------- ---------- ------- ----------
(in thousands, except number of customers data and
ratios)
<S> <C> <C> <C> <C> <C> <C>
Other Financial and
Operating Data:
Number of Network
Services customers
/(4)/.................. 166 4,061 6,923 42,391 /(5)/ 10,830 50,724 /(5)/
EBITDA /(6)/............ $(655) $(1,997) $(8,493) $(9,965) $(5,898) $(11,339)
Capital expenditures
/(7)/.................. 552 1,708 6,034 8,713 6,587 na
Ratio of earnings to
fixed charges /(8)/.... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- -----------------
1996 1997 1998 1998 1999
------- ------ ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) /(9)/... $ 339 $ 891 $37,751 $(4,065) $(11,562)
Total assets......................... 2,211 12,617 79,445 19,569 96,786
Long-term debt /(10)/................ -- 42 1,383 40 1,711
Total stockholders' equity........... 1,790 8,908 67,359 8,631 58,046
</TABLE>
- --------
(1) Pro forma statement of operations and balance sheet data are based on the
unaudited Pro Forma Consolidated Financial Statements included elsewhere
in this prospectus. The pro forma balance sheet is based on the historical
balance sheet of the Company adjusted as if the acquisition of Flashnet
and the Interim Loan incurred to fund such acquisition had been completed
on June 30, 1999. The pro forma statement of loss for the year ended
December 31, 1998 is based on the historical statement of loss adjusted as
if the Open:Net, Vianet and Flashnet acquisitions were completed on
January 1, 1998 and the pro forma statement of loss for the six months
ended June 30, 1999 is based on the historical statements of loss adjusted
as if the Flashnet acquisition and the Interim Loan incurred to fund such
acquisition had been completed on January 1, 1999. The pro forma data does
not purport to represent what our financial position or results of
operations would have been had these acquisitions been made on such dates.
(2) Represents depreciation and amortization of capitalized costs related to
investments in product development, designing our network (including
related software) and building network capacity (including related
personnel and consulting costs).
(3) Represents depreciation of property and equipment and amortization of
acquired goodwill.
(4) Number of customers as of December 31, 1996, 1997, and 1998, and March 31,
1999.
(5) Includes 32,652 and 39,894 Flashnet customers (of which 1,096 and 1,625
were business customers and 31,556 and 38,269 were residential customers)
at December 31, 1998 and March 31, 1999, respectively.
(6) We define EBITDA as loss before interest, income taxes, minority interest,
depreciation and amortization. EBITDA is included because management
believes it is a useful indicator of a company's ability to incur and
service debt. EBITDA should not be considered as a substitute for
operating earnings, net income, cash flow or other statements of
operations or cash flow data computed in accordance with US GAAP or as a
measure of our results of operations or liquidity. Funds depicted by this
measure may not be available for management's discretionary use (due to
covenant restrictions, debt service payments and other commitments).
Because all companies do not calculate EBITDA identically, the
presentation of EBITDA contained herein may not be comparable to other
similarly entitled measures of other companies.
(7) Pro forma capital expenditures for the six months ended June 30, 1999 was
not available.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of losses before income taxes and minority interest, plus fixed
charges. Fixed charges consist of interest expense. Earnings were
insufficient to cover fixed charges by $(684), $(2,284), $(10,893),
$(13,690), $(16,862) and $(15,364) for the years ended December 31, 1996,
1997 and 1998, for the six months ended June 30, 1999, the year ended
December 31, 1998 pro forma and the six months ended June 30, 1999 pro
forma, respectively.
(9) We define working capital as total current assets less total current
liabilities.
(10) Long-term debt includes obligations under capital lease agreements.
50
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Consolidated Financial Statements are based
on our Consolidated Financial Statements contained elsewhere in this
prospectus. The accompanying unaudited Pro Forma Consolidated Statements of
Loss for the year ended December 31, 1998 and the six months ended June 30,
1999, are based on the historical consolidated financial statements of the
Company contained elsewhere in this prospectus, adjusted as if the acquisitions
of Open:Net, Vianet and Flashnet, collectively referred to as the
"Acquisitions," had occurred on January 1, 1998. These unaudited Pro Forma
Consolidated Financial Statements do not include the results of operations of
Sunweb due to the relative insignificance of the amounts involved nor do they
reflect the Discount Notes Offering, the PIK Notes Offering or application of
the proceeds therefrom.
The unaudited Pro Forma Consolidated Financial Statements combine the
historical financial position and results of the Company with the historical
financial position and results of the Acquisitions, prior to the dates the
Company made such acquisitions, using the purchase method of accounting. The
Pro Forma Consolidated Statements of Loss presented are not necessarily
indicative of the operating results that would have been achieved had such
transactions occurred at the dates indicated above. These statements are based
on the assumptions set forth in the notes to such statements and should be read
in conjunction with the related financial statements and notes thereto of the
Company, Open:Net, Vianet and Flashnet included elsewhere in this prospectus.
The accounting adjustments reflected in the accompanying unaudited Pro Forma
Consolidated Financial Statements reflect estimates made by the Company and
assumptions which the Company believes to be reasonable. The Company believes
that no significant uncertainties should affect the pro forma adjustments and
considers the impact of any such uncertainties to be immaterial.
51
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF LOSS
Year ended December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
Company Acquisitions as Adjusted
---------- ------------ -----------
(in thousands, except per share
data)
<S> <C> <C> <C>
Revenue
Internet Projects.................. $ 5,139 $ 1,067(a) $ 6,206
Network Services................... 3,495 7,689(a) 11,184
---------- -------- ----------
Total revenues....................... 8,634 8,756 17,390
Cost of revenues
Internet Projects.................. 4,699 801(b) 5,500
Network Services................... 4,067 4,882(b) 8,949
Depreciation and amortization...... 1,674 376(b) 2,050
---------- -------- ----------
Total cost of revenues........... 10,440 6,059 16,499
---------- -------- ----------
Gross profit (loss).................. (1,806) 2,697 891
General and administrative expenses.. 1,576 1,936(c) 3,512
Marketing expenses................... 3,844 1,692(c) 5,536
Research and development expenses.... 2,941 917(c) 3,858
Depreciation and amortization........ 880 4,131(c)(d) 5,011
---------- -------- ----------
Total operating expenses......... 9,241 8,676 17,917
---------- -------- ----------
Operating loss....................... (11,047) (5,979) (17,026)
Interest expense..................... 197 234(e) 431
Interest income...................... 154 10(e) 164
---------- -------- ----------
Loss before taxes and minority inter-
est................................. (11,090) (6,203) (17,293)
Income tax benefit................... 6,173 580(f) 6,753
Minority interest.................... 145 -- 145
---------- -------- ----------
Net loss............................. $ (4,772) $ (5,623) $ (10,395)
========== ======== ==========
Basic and diluted loss per share..... $ (0.30) $ (0.64)
========== ==========
Number of shares used to compute
earnings per share.................. 16,012,653 339,887(g) 16,352,540
========== ======== ==========
</TABLE>
52
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF LOSS
Six months ended June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
Company Acquisitions as Adjusted
------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenue
Internet Projects......... $ 2,459 $ 432(a) $ 2,891
Network Services.......... 5,994 3,875(a) 9,869
------------- ---------- -------------
Total revenues.............. 8,453 4,307 12,760
Cost of revenues
Internet Projects......... 2,056 313(b) 2,369
Network Services.......... 6,534 2,665(b) 9,199
Depreciation and amortiza-
tion..................... 1,545 130(b) 1,675
------------- ---------- -------------
Total cost of revenues.. 10,135 3,108 13,243
------------- ---------- -------------
Gross (loss)................ (1,682) 1,199 (483)
General and administrative
expenses................... 3,770 225(c) 3,995
Marketing expenses.......... 5,147 1,125(c) 6,272
Research and development ex-
penses..................... 2,146 118(c) 2,264
Depreciation and amortiza-
tion....................... 1,228 1,505(c)(d) 2,733
------------- ---------- -------------
Total operating ex-
penses................. 12,291 2,973 15,264
------------- ---------- -------------
Operating loss.............. (13,973) (1,774) (15,747)
Interest expense............ 64 47 (e) 111
Interest income............. 383 0 383
------------- ---------- -------------
Loss before taxes........... (13,654) (1,821) (15,475)
Minority interest income
(expense).................. 103 0 103
Income tax benefit.......... 5,302 (44)(f) 5,258
------------- ---------- -------------
Net loss.................... $ (8,249) $ (1,865) $ (10,114)
============= ========== =============
Basic and diluted loss per
share...................... $ (.44) $ (.53)
============= =============
Number of shares used to
compute loss per share..... 18,917,582 301,290 (g) 19,218,872
============= ========== =============
</TABLE>
53
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise indicated)
(a) Includes the revenues of the Acquisitions for the periods prior to their
respective acquisition dates as follows.
<TABLE>
<CAPTION>
Vianet Open:Net Flashnet Total
------ -------- -------- -----
<S> <C> <C> <C> <C>
1998 Pro Formas
Internet Projects.......................... -- 461 606 1,067
Network Services........................... 3,123 372 4,194 7,689
1999 Pro Formas
Internet Projects.......................... -- -- 432 432
Network Services........................... -- -- 3,875 3,875
(b) Includes the cost of revenues of the Acquisitions for the periods prior to
their respective acquisition dates as follows.
<CAPTION>
Vianet Open:Net Flashnet Total
------ -------- -------- -----
<S> <C> <C> <C> <C>
1998 Pro Formas
Internet Projects.......................... -- 242 559 801
Network Services........................... 1,682 215 2,985 4,882
Depreciation and amortization.............. 88 22 266 376
1999 Pro Formas
Internet Projects.......................... -- -- 313 313
Network Services........................... -- -- 2,665 2,665
Depreciation and amortization.............. -- -- 130 130
(c) Includes the operating expenses of the Acquisitions for the periods prior
to their respective acquisition dates as follows.
<CAPTION>
Vianet Open:Net Flashnet Total
------ -------- -------- -----
<S> <C> <C> <C> <C>
1998 Pro Formas
General and administrative expenses........ 420 26 1,490 1,936
Marketing expenses......................... 741 310 641 1,692
Research and development expenses.......... 259 178 480 917
Depreciation and amortization.............. 75 27 112 214
1999 Pro Formas
General and administrative expenses........ -- -- 225 225
Marketing expenses......................... -- -- 1,125 1,125
Research and development expenses.......... -- -- 118 118
Depreciation and amortization.............. -- -- 118 118
</TABLE>
(d)Represents the amortization of goodwill and other intangible assets arising
from the Acquisitions.
<TABLE>
<CAPTION>
Vianet Open:Net Flashnet Total
------ -------- -------- -----
<S> <C> <C> <C> <C>
1998 Pro Formas
Amortization................................. 766 168 2,983 3,917
1999 Pro Formas
Amortization................................. -- -- 1,387 1,387
</TABLE>
54
<PAGE>
Amortization is calculated on a straight line basis using the following
useful lives.
<TABLE>
<S> <C>
Goodwill.......................................................... 10 years
Customer base..................................................... 5 years
Management contracts.............................................. 3 years
</TABLE>
The calculation and allocation of the purchase price was as follows:
<TABLE>
<CAPTION>
Vianet Open:Net Flashnet Total
------ -------- -------- -------
<S> <C> <C> <C> <C>
Purchase price....................... $4,483 $2,541 $25,963 $32,987
Less: net assets acquired............ (37) 130 (1,784) (1,691)
------ ------ ------- -------
Excess of purchase price over net as-
sets acquired....................... $4,520 $2,411 $27,747 $34,678
</TABLE>
Allocated to:
<TABLE>
<S> <C> <C> <C> <C>
Goodwill..................................... $2,063 $2,299 $27,747 $32,109
Customer base................................ 1,945 112 -- 2,057
Management contracts......................... 512 -- -- 512
------ ------ ------- -------
$4,520 $2,411 $27,747 $34,678
====== ====== ======= =======
</TABLE>
In addition to the cash of $4,483 (of which $4,125 was paid in the first
quarter of 1999), the purchase price for Vianet includes 225,000 shares of
common stock of the Company which were placed with a trustee to be released
annually over a five year period. Of these shares, 150,000 are to be released
in 30,000 share increments as long as the owner of these shares remains an
employee of the Company. The remaining 75,000 shares are to be released
annually over a five year period in 15,000 share increments. The 150,000 shares
as to which release will be made so long as the owner thereof remains an
employee of the Company are being treated as contingent consideration and,
accordingly, will be recorded as an additional cost of the acquisition when the
shares are released by the trustee.
(e) Includes interest income and expense of the Acquisitions for the periods
prior to their respective acquisition dates as follows:
<TABLE>
<CAPTION>
Vianet Open:Net Flashnet Total
------ -------- -------- -----
<S> <C> <C> <C> <C>
1998 Pro Formas
Interest expense............................ 3 8 223 234
Interest income............................. -- -- 10 10
1999 Pro Formas
Interest expense............................ -- -- 47 47
Interest income............................. -- -- -- --
</TABLE>
(f) The income tax adjustment represents Vianet income tax expense of $4 and
Flashnet income benefit of $584 for 1998 and a Flashnet income tax expense
of $44 for 1999.
(g) Weighted average shares outstanding for the purposes of calculating pro
forma basic and diluted loss per share is as follows:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Historical weighted average shares................. 16,012,653 20,428,698
Shares issued in connection with certain of the
Acquisitions and not reflected in historical
weighted average shares;
Open: Net acquisition............................ 38,597 --
Flashnet acquisition............................. 301,290 301,290
---------- ----------
16,352,540 20,729,988
========== ==========
</TABLE>
55
<PAGE>
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 prospectus. The discussion of the results of
operations of Vianet, with respect to the fiscal years ended 1998 and 1997, is
based on financial statements included elsewhere in this prospectus. 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 "Risk Factors" and "Information Regarding
Forward-Looking Statements."
Overview
General
We have experienced substantial rates of revenue growth since commencing
significant operations in 1996. Our revenues have grown from $307,673 in 1996
to $2,314,021 in 1997 and to $8,633,528 in 1998 (approximately $17,390,000 in
1998 on a pro forma basis). This revenue growth has been generated both
internally, as we have significantly expanded our customer base, and through
acquisitions.
Since 1996, we have acquired six companies:
. Cybernet E-Commerce. In September 1997, we acquired 100% of Artwise,
which was later renamed Cybernet E-Commerce, the financial results of
which are included in our Consolidated Financial Statements from the
date of that acquisition.
. Eclipse. In December 1997, we acquired 66% of Eclipse, but did not
include the financial results of that company's operations in our
Consolidated Financial Statements until 1998 because its 1997 financial
results from the date of that acquisition were immaterial to our
consolidated results.
. Open:Net. In August 1998, we acquired 100% of Open:Net, the financial
results of which are included in our Consolidated Financial Statements
from the date of that acquisition.
. Vianet. In December 1998, we acquired 100% of Vianet but did not include
the financial results of that company's operations in our Consolidated
Financial Statements until the first quarter of 1999 because the 1998
financial results from the date of that acquisition were immaterial to
our consolidated results. We have, however, included below a discussion
of Vianet's results of operations for its fiscal years 1998 and 1997.
. Sunweb. In May 1999, we acquired 51% of Sunweb. Because that acquisition
occurred in May 1999, the financial results of that company's operations
are not included in our Consolidated Financial Statements for 1998 nor
in our results of operations for the three months ended on March 31,
1999.
. Flashnet. In June 1999, we acquired 100% of Flashnet, a leading Italian
ISP through which we gained access to all major business centers in
Italy.
Our recent acquisition history limits the comparability of the historical
financial information discussed herein.
56
<PAGE>
The following table sets forth, for the periods indicated, the items of our
Consolidated Statements of Loss expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Percent of Total Revenues
------------------------------------------
Six months
Years ended December 31, ended June 30,
-------------------------- ---------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue
Internet Projects.................. 70.6% 69.1% 59.5% 55.6% 29.1%
Network Services................... 29.4% 30.9% 40.5% 44.4% 70.9%
Total Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Revenues
Internet Projects.................. 77.0% 64.6% 54.4% 42.9% 24.3%
Network Services................... 38.8% 37.4% 47.1% 52.1% 77.3%
Depreciation and amortization...... 2.2% 7.4% 19.4% 9.9% 18.3%
Total cost of revenues........... 118.0% 109.4% 120.9% 104.9% 119.9%
Gross loss......................... -18.0% -9.4% -20.9% -4.9% -19.9%
Operating Expenses
General and administrative
expenses.......................... 85.5% 20.8% 18.3% 19.5% 44.6%
Marketing expenses................. 53.5% 51.4% 44.5% 48.0% 60.9%
Research and development........... 58.2% 12.1% 34.1% 24.5% 25.4%
Depreciation and amortization...... 6.9% 5.0% 10.2% 8.1% 14.5%
Total operating expenses......... 204.1% 89.3% 107.1% 100.1% 145.4%
Operating loss..................... -222.1% -98.7% -128.0% -105.0% -165.3%
Interest expense................... -0.7% -1.7% -2.3% -3.2% -0.8%
Interest income.................... -- -- 1.8% 0.4% 4.5%
Loss before taxes and minority
interest.......................... -222.8% -100.4% -128.5% -107.8% -161.5%
Income tax benefit................. 130.6% 57.9% 71.5% 59.9% 62.7%
Net loss before minority interest.. -92.2% -42.5% -57.0% -47.9% -98.8%
Minority interest.................. -- -- 1.7% -- 1.2%
Net loss........................... -92.2% -42.5% -55.3% -47.9% -97.6%
</TABLE>
Revenues
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 our customers' employees and
hardware and software sales resulting from, for example, the installation of
VPNs, websites, e-commerce solutions and customer servers in our data centers.
Internet Project revenues for any particular project depend upon its size and
complexity. An Internet Project is typically completed within three months and
the related revenues are recognized upon completion and customer acceptance of
the related project.
In most cases, after completion of an Internet Project, we derive recurring
revenues from the ongoing management and monitoring of the services and
solutions we have set up. We record these recurring revenues under Network
Services revenues. Network Services revenues are primarily derived from
recurring connectivity charges and include maintenance and usage charges
related to VPNs, co-location and hosting services. Network Services revenues
also result from eight affinity groups with which we have specific contractual
arrangements. These affinity groups act as resellers of our connectivity
services and their members become our customers. The customers who came to us
through affinity groups tend to be smaller customers. The majority of our
Network Services revenues are from connectivity charges. We recognize these
revenues when the services are provided to our customers. Revenues from Network
Services in 1998 constituted 40.5% of our total revenues
57
<PAGE>
compared with 30.9% for 1997. We expect Network Services revenues to continue
to increase as a percentage of total revenues as we grow our customer base and
thereby create a larger portion of recurring revenues. In 1998, Flashnet had
total revenues of Lit. 8,334,043 thousand ($4,597,003). We also expect that our
acquisition of Flashnet, which has relatively less Internet Project revenues,
will contribute to this shift.
We currently encounter and expect to continue to encounter significant
downward pressure on the prices of our products and services. We expect that
these price declines will dampen revenues for the second quarter.
The table below summarizes the revenues and customer evolution for Internet
Projects and Network Services for the years ended December 31, 1996, 1997 and
1998, respectively and the three months ended March 31, 1999:
<TABLE>
<CAPTION>
As at and
for the
As at and for the three
years ended December months
31, ended
--------------------- March 31,
1996 1997 1998 1999
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Internet Projects
Internet Project Customers(a)................ 12 49 122 19
Internet Project Revenues ($'000)............ 217 1,598 5,139 1,392
Average Internet Project Revenue per Customer
($)......................................... 18,108 32,610 42,124 73,274
Network Services
Network Services Business Customers
Number of Customers(b)...................... 166 2,120 3,077 6,095
Average Number of Customers(c).............. 83 1,143 2,599 5,994
Churn Percentage(d)......................... N/A 4.8% 0.8% 0.4%
Revenues ($'000)............................ 91 659 2,680 2,279
Average Revenues per Customer(e)($)......... 1,093 577 1,031 380
Network Services Affinity Group Customers
Number of Customers(b)...................... -- 1,941 3,846 4,735
Average Number of Customers(c).............. -- 971 2,894 4,291
Revenues ($'000)............................ -- 57 814 183
Average Revenues per Customer(e)($)......... -- 58 281 43
Total Network Services Customers
Number of Customers(b)...................... 166 4,061 6,923 10,830
Average Number of Customers(c).............. 83 2,114 5,492 10,285
Revenues ($'000)............................ 91 716 3,494 2,462
Average Revenues per Customer(e)($)......... 1,093 339 636 239
</TABLE>
- --------
(a) Represents aggregate customers during the relevant period.
(b) Number of customers at end of relevant period.
(c) Calculated as the arithmetic average of beginning-of-period and end-of-
period customers. The beginning of period customers for the three months
ended March 31, 1999 include 2,816 Network Services Business Customers of
Vianet (not included in number of customers as of December 31, 1998).
(d) Calculated as the number of customers lost during the period as a
percentage of the average number of customers for the period.
(e) Calculated as revenues for the period divided by average number of
customers for the period.
Cost of Revenues
Cost of revenues consists principally of (i) telecommunications expenses,
(ii) personnel costs, (iii) cost of hardware and software sold, (iv)
amortization of product development costs, (v) depreciation of network
infrastructure, and (vi) service and consulting expenses. Telecommunications
expenses mainly represent the cost of transporting Internet traffic from our
customers' locations through a local telecommunications carrier to
58
<PAGE>
one of our access nodes and the cost of leasing lines to interconnect our
backbone nodes. Like our revenues, we classify our cost of revenues (other than
depreciation and amortization costs) according to whether they are incurred in
connection with Internet Projects or with Network Services. Additionally, we
include in our cost of revenues certain depreciation and amortization of
capitalized costs related to investments in product development, designing our
network (including related software), and building network capacity (including
related personnel and consulting costs). These costs are amortized over a
period not exceeding four years. As we develop our network capacity, we expect
to record increased costs for depreciation and amortization of network
infrastructure.
In 1998, Flashnet's cost of revenues was Lit. 6,615,614 thousand ($3,649,129)
representing 79.4% of its revenues, a lower percentage than our own. We
therefore expect that in 1999 our acquisition of Flashnet will have a positive
effect on our gross margin.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and other
personnel costs for our administrative staff, office rent and utilities. In
1998, Flashnet's general and administrative expenses were Lit. 2,586,000
thousand ($1,426,421), representing approximately 31.0% of revenues. This is
approximately equal to the relationship between our general and administrative
expenses and revenues.
Marketing Expenses
Marketing expenses consist principally of salaries of our sales force and
advertising and communication expenditures. As we continue to grow our sales
force and to increase brand awareness, we anticipate that marketing expenses
will continue to increase. In 1998, Flashnet had marketing expenses of Lit.
1,114,000 thousand ($614,475) representing 13.4% of revenues.
Research and Development
Research and development expenses consist principally of personnel costs of
employees working on the development of new products and services, consulting
costs and certain overhead items associated with these activities. In 1998,
Flashnet had research and development expenses of Lit. 834,000 thousand
($460,029) representing 10.0% of revenues compared to 34.1% for Cybernet.
Depreciation and Amortization
Depreciation and amortization expense consists of depreciation of capital
expenditures for property and equipment purchased to build the corporate
infrastructure necessary to support our anticipated growth as well as
amortization of goodwill related to our acquisitions. Goodwill represents the
excess of the purchase price of companies we purchased over the fair value of
the tangible assets and identifiable intangible assets of those companies and
is amortized over 10 years. This expense in our income statement does not
include the depreciation and amortization described under "--Cost of Revenues"
above.
Interest Expense and Income
Interest expense consists principally of interest associated with capital
lease obligations which we undertook in 1998 to finance the purchase of
computer equipment. Interest income consists of interest earned on excess cash
balances, including those resulting from the proceeds of our 1998 equity
offerings. Our interest expense and income will increase significantly in
future periods as a result of interest accruing on the Senior Notes, the
Discount Notes and the PIK Notes and interest generated by the collateral
account created in connection with the issuance of the Senior Notes,
respectively.
Income Taxes
Our income tax benefits result largely from the operating losses of our
German subsidiaries. Under current German law, the tax benefit resulting from
these losses can be carried forward indefinitely.
59
<PAGE>
Other Comprehensive Loss: Foreign Currency Translation Adjustments
Foreign currency translation adjustments result from the translation of the
assets and liabilities of our international subsidiaries from their local
reporting currency into United States 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. Accordingly, we recognize unrealized foreign exchange gains with
respect to non-United States dollar-denominated assets when the value of the
United States dollar decreases with respect to these other currencies and
unrealized foreign exchange losses when the relative value of the United States
dollar increases.
Results of Operations--Six Months Ended June 30, 1998 Compared to the Six
Months Ended June 30, 1999
Revenues
Total revenues increased 152.1% from $3,352,487 in first half of 1998 to
$8,452,353 in first half of 1999. Internet Project revenues increased 32.0%
from $1,863,075 in the first half of 1998 to $2,458,547 for the same time
period in 1999 while Network Services revenues increased 302.4% from $1,489,412
to $5,993,805. First half Network Services revenues represented 70.9% of total
revenues in 1999, as compared with 44.4% in 1998. The relative higher increase
in revenues from Network Services is partially a result of expansion of our
customer base, which provides us with a stream of recurring revenues. Although
the Company has focused on building these recurring revenues from Network
Services, building relations with Internet Project customers remains a
continuing strategy. In addition, we consolidated $1,901,219 of Vianet revenues
and (for the second quarter only) $120,256 of Sunweb revenues in the first half
of 1999. Vianet's revenues are derived principally from Network Services.
Excluding the impact of consolidating Vianet's, Open:Net's and Sunweb's
revenues, Network Services revenues in the first half of 1999 would have
increased 174.0% from the first half of 1998.
Cost of Revenues
Cost of revenues increased 188.3% from $3,515,654 in the first half of 1998
to $10,134,196 in the first half of 1999. Cost of revenues for Internet
Projects increased 42.9% from $1,438,477 to $2,055,656. Cost of revenues for
Network Services increased 274.3% from $1,745,699 to $6,533,928. A portion of
this increase in Network Services costs reflects the consolidation of Vianet
(even though Vianet's cost of revenues as a percentage of revenues was lower
than our own). Excluding Vianet, our cost of revenues increased approximately
164%, due to expenditures for personnel and expenses associated with the
expansion of our network, including leasing additional lines to provide the
increased capacity we will require as our business grows. The shift in
percentage cost of revenues from Internet Projects to Network Services in the
first half of 1999 is the result of our continued investment in Network
Services infrastructure. This investment included leased line costs, costs of
newly hired personnel for network deployment and management and network
facilities and equipment.
While total revenues increased, increases in cost of revenues caused gross
margins to decline from $(163,167) in the first half of 1998 to $(1,681,843) in
the first half of 1999. Cost of revenues as a percentage of total revenues
increased from 104.9% in the first six months of 1998 to 120.0% in the same
time period for 1999. This is principally due to our investment in Network
Services infrastructure, discussed above. We expect to see improvement in our
gross margin generally and Network Service in particular as we expand our
customer base and increase revenues per account and are thereby able to spread
the costs of product and network development over a larger revenue base. We
also expect our gross margin to improve over time as a result of our strategy
to construct our own infrastructure, including the replacement of leased
transmission facilities with owned facilities and the purchase of domestic and
international transmission capability as a telecommunications operator (rather
than as a purchaser at retail prices).
General and Administrative Expenses
General and administrative expenses increased 475.8% from $654,685 in the
first half of 1998 to $3,769,986 in the first half of 1999. These expenses
constituted 44.6% of revenues in the first half of 1999, compared to 19.5% for
the same period in 1998. Several factors contributed to this increase
including: the
60
<PAGE>
addition of personnel to develop and manage information systems and internal
services as well as the addition of senior management at the Cybernet AG level
to oversee our international operations; the centralizing of our IT group;
general office equipment purchases and relocation expenses at Sunweb; and, to a
lesser extent, certain accounting reallocations and the impact of consolidating
Open:Net, Vianet and Sunweb in the first half of 1999. Open:Net, Vianet and
Sunweb together incurred general and administrative expenses of $507,714. We
have recently undertaken certain measures, including a hiring freeze in our
German operations and at Sunweb
on all non-sales force employee additions until revenues improve, with the
expectation that over the next several fiscal quarters, such measures will help
to decrease the proportion of general and administrative expenses to our total
revenues.
Marketing Expenses
Marketing expenses increased 220.1% from $1,607,852 in the first half of 1998
to $5,147,291 in first half of 1999, principally as a result of substantial
investments in marketing activities, including trade fairs, product literature
and related expenditures. These investments have also included consolidating
the various local brands that we have acquired. This increase also reflects the
impact of consolidating Open:Net, Vianet and Sunweb in the first half of 1999,
which together incurred marketing expenses of $651,584. Although we expect
marketing expenses to decrease as a percentage of revenues over time, we plan
to increase the amount we spend to establish our trade name locally and
internationally.
Research and Development
Research and development expenditures increased 161.4% from $820,921 in the
first half of 1998 to $2,146,090 in the first half of 1999. This reflects an
increase in personnel hired to develop new products and services, especially
our e-commerce solutions for which 19 people were hired in the first half of
1999.
Depreciation and Amortization
Depreciation and amortization increased 351.3% from $272,052 in the first six
months of 1998 to $1,227,757 in the first half of 1999. This increase is
attributable to the additional amortization of the goodwill arising from the
acquisition of Open:Net and Vianet in 1998 and to our investments in computer
hardware and software and facilities and depreciation of our billing system.
Interest Expense and Income
Interest expense decreased 39.3% from $105,584 in the first six months of
1998 to $64,066 in the same period of 1999. Our interest income increased from
$11,701 in the first six months of 1998 to $383,431 in the same period of 1999.
This increase is principally a result of interest earned on cash proceeds from
our December 1998 private equity offering. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Cash Flow."
Other Comprehensive Loss: Foreign Currency Translation Adjustments
Foreign currency translation adjustments resulted in a gain of $12,619 in the
first half of 1998 and a loss of $7,624,064 in the first half of 1999. The
decrease in 1999 over 1998 is a result of the strengthening of the U.S. dollar
in the first six months of 1999 in relation to the Deutsche Mark.
Results of Operations--Year Ended December 31, 1998 As Compared To The Year
Ended December 31, 1997
Revenues
Total revenues increased by 273.1% from $2,314,021 in 1997 to $8,633,528 in
1998. In 1998, Network Services represented 40.5% of total revenues as compared
to 30.9% in 1997. The relative shift from Internet Project revenues to Network
Services revenues is primarily a result of the fact that we have expanded our
customer base and have thereby created a larger recurring revenue base. It also
results from the fact that a larger proportion of the revenues from the
companies we have acquired are Network Services revenues.
61
<PAGE>
Our revenue growth has been generated through our acquisitions as well as
internal growth of our existing business. The chart below sets forth our
revenues from existing operations compared to our revenues from acquired
companies for both Internet Projects and Network Services in 1998, pro forma as
if the acquisitions of Open:Net, Vianet and Flashnet had occurred on January 1,
1998.
Pro Forma for Year Ended December 31, 1998
<TABLE>
<CAPTION>
Revenues from Revenues from
Existing Operations Acquired Companies
------------------- ------------------
<S> <C> <C>
Internet Projects Revenues............ 59.3% 20.9%
Network Services Revenues............. 40.7% 79.1%
</TABLE>
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. Average Internet Project revenues per customer
increased from $32,610 in 1997 to $42,124 in 1998 reflecting our transition
from smaller to medium-sized customers as our reputation and brand awareness
have improved. This has resulted in an increase in average revenues per
customer.
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. Our total number of customers increased by 70.5% in
1998 to 6,923 customers from 4,061 in 1997. No single customer accounted for
more than 6% of our revenues in 1998. A substantial number of our smaller
Network Services customers belongs to affinity groups with which we began
forming relationships in our prior years. Excluding affinity group members, we
provided Network Services to 3,077 customers as of December 31, 1998, compared
to 2,120 customers as of December 31, 1997. The addition of 977 new customers
(which includes affinity group customers) produced 55.9% of Network Services
revenues. We derived the remaining 44.1% from existing customers. Average
revenues per Network Services customer increased from $339 in 1997 to $636 in
1998 (from $577 to $1,031, excluding affinity group customers) reflecting the
transition of our customer base to larger enterprises and the provision of
services in addition to connectivity.
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. Vianet, our Austrian subsidiary, which we acquired on December 28, 1998,
and whose results are not included in the Company's results of operations for
the year ended December 31, 1998, had revenues of approximately $3.2 million in
1998.
Cost of Revenues
Total cost of revenues increased by 312.4% from $2,531,787 in 1997 to
$10,440,008 in 1998. Cost of revenues as a percentage of revenues increased
from 109.4% in 1997 to 120.9% in 1998.
The costs of our Internet Project 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 and the costs of additional
personnel. Costs of Internet Projects as a percentage of Internet Project
revenues decreased from 93.6% in 1997 to 91.4% in 1998. This decrease is
primarily attributable to a reduction in training and seminar expenditures,
partially offset by the increase in purchases of hardware and software.
The costs 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 to provide the increased capacity we will require as our
business grows. Costs of Network Services revenues 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 associated with these
revenues and a reduction in purchased Internet services due to the development
of our own network.
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<PAGE>
Depreciation and amortization included in cost of revenues increased by
877.8% from $171,196 in 1997 to $1,673,938 in 1998 as a result of new
investments in project development from year to year. We have capitalized
certain investments associated with designing the network (including related
software) and with building network capacity (including related personnel and
consulting costs) and 1998 was the first year to include a full year of
depreciation for these investments.
General and Administrative Expenses
General and administrative expenses increased by 227.1% from $481,700 in 1997
to $1,575,758 in 1998. The increase in our general and administrative expenses
reflects not only the costs of building a corporate infrastructure to support
our anticipated growth but also the impact of the addition of general and
administrative expenses of companies acquired in 1997 and 1998. As a percentage
of total revenues, 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. These 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 local and international
awareness of our brand. As a percentage of total revenues, our marketing
expenses decreased from 51.4% in 1997 to 44.5% in 1998.
Research and Development
Research and development expenses increased by 951.4% from $279,698 in 1997
to $2,940,865 in 1998. 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 not only members of our research and development
staff, but also members of our marketing force, and we include in research and
development expenses the portion of our marketing force personnel's time
devoted to product development. We also incurred consulting expenses in 1998
not incurred in 1997 while researching the viability of certain
telecommunications services that we plan to offer in the future. These
consulting expenses amounted to $554,005. As a percentage of revenues, research
and development expenses increased from 12.1% in 1997 to 34.1% in 1998.
Depreciation and Amortization
Depreciation and amortization expense increased by 659.3% from $115,899 in
1997 to $879,978 in 1998. This increase reflects increased depreciation of
capital expenditures on property and equipment purchased in order to build the
corporate infrastructure necessary to support our anticipated growth. This
expense also reflects increased amortization of goodwill related to our 1997
and 1998 acquisitions. Most of these investments were not capitalized until
1997, and because we had a full year of depreciation for 1998, depreciation and
amortization expenses for 1998 are significantly greater than they were in
1997.
Net goodwill in connection with the 1997 acquisitions of Cybernet E-Commerce
and Eclipse amounted to $1,322,566 at December 31, 1997 and net goodwill
including the 1998 acquisitions of Open:Net and Vianet amounted to $6,504,576
at December 31, 1998. We amortize goodwill over 10 years. In 1999, we will
begin depreciating additional goodwill of approximately $30 million which will
be added to our balance sheet as a result of the Flashnet acquisition.
Interest Expense and Income
Interest expense increased by 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. We earned
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interest income in 1998 of $154,296 on excess cash balances resulting from the
proceeds of our 1998 equity offering. We had no interest income in 1997.
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 from our operating
subsidiaries in Germany. Under the current German tax code, these net operating
losses may be carried forward indefinitely and used to offset our future
taxable earnings.
Other Comprehensive Loss: Foreign Currency Translation Adjustments
Foreign currency translation adjustments resulted in a gain in 1998 of
$1,204,589 and a loss in 1997 of $210,211 in 1997. The 1998 gain is a result of
the weakening of the U.S. dollar in 1998 in relation to the Deutsche Mark.
Results of Operations--Year Ended December 31, 1997 As Compared To The Year
Ended December 31, 1996
Revenues
Total revenues increased by 652.1% from $307,673 in 1996 to $2,314,021 in
1997. This revenue growth is primarily a result of the fact that 1997 was a
full year of operations while 1996 was primarily devoted to start-up and
initial marketing activities.
Revenues from Internet Projects increased by 635.3% from $217,296 in 1996 to
$1,597,869 in 1997 and represented 70.6% and 69.1% of total revenues in 1996
and 1997, respectively. Average revenues per customer increased from $18,108 in
1996 to $32,610 in 1997. The increase in average revenues per customer reflects
our transition from small- to medium-sized customers.
Revenues from Network Services increased by 692.4% from $90,377 in 1996 to
$716,152 in 1997 and represented 29.4% and 30.9% of total revenues in 1996 and
1997, respectively. Our total number of customers increased by 2,346.4% in 1997
to 4,061 customers from 166 in 1996. No single customer accounted for more than
10% of our revenues in 1997. In 1997 we added 1,941 new customers by
establishing relationships with affinity groups. This addition of new customers
allowed us to obtain additional revenues with relatively low incremental cost.
Excluding affinity group members, we provided Network Services to 2,120
customers as of December 31, 1997, compared to 166 customers as of December 31,
1996. The addition of 2,009 new customers (which includes affinity group
customers) represented 97.0% of Network Services revenues. The remaining 3.0%
was derived from existing customers. Average revenues per customer decreased
from $1,093 in 1996, our first year of operation, to $339 in 1997. This
decrease occurred in part because 1997 was the first year in which we
contracted with affinity group customers. These customers typically produce
lower average Network Services revenues than our business customers.
Costs of Revenues
Total costs of revenues increased by 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 costs of our Internet Projects revenues increased by 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. Costs of
Internet 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 freelance staff costs utilized to design websites during our first year of
operations.
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The costs of our Network Services revenues increased by 625.4% from $119,297
in 1996 to $865,357 in 1997. This increase primarily resulted from increased
personnel costs and the cost of additional leased lines. Costs 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.
Depreciation and amortization, included in costs of revenues, increased by
2,422.8% from $6,786 in 1996 to $171,196 in 1997 as a result of new investments
in product development and establishing our network from year to year.
General and Administrative Expenses
General and administrative expenses increased by 83.0% from $263,175 in 1996
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
freelance staff costs. These reductions were partially offset by higher
personnel costs and advertising and telecommunications expenses.
Research and Development
Research and development expenses increased by 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 as significant
operations commenced.
Depreciation and Amortization
Depreciation and amortization increased by 445.1% 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 arising from the 1997 acquisitions.
We had no net goodwill at December 31, 1996. At December 31, 1997, net
goodwill in connection with the acquisitions of Artwise and Eclipse amounted to
$1,322,566.
Interest Expense and Income
Interest expense increased by 1,802.4% 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. We incurred these overdrafts to fund our
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 from our operating
subsidiaries in Germany. Under the current German tax code, these net operating
losses may be carried forward indefinitely and used to offset our future
taxable earnings.
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Other Comprehensive Loss: Foreign Currency Translation Adjustments
Foreign currency translation adjustments resulted in a loss of $210,211 in
1997 and a loss of $5,089 in 1996.
Vianet--Results of Operations--Year Ended December 31, 1998 As Compared To The
Year Ended December 31, 1997
Vianet is an Austrian ISP acquired by our Company on December 28, 1998. We
accounted for the acquisition using the purchase method of accounting. Because
Vianet's results of operations subsequent to the acquisition date were
immaterial to our consolidated financial results, we did not include them in
our 1998 Consolidated Financial Statements.
We provide below a discussion of Vianet's results of operations for the year
ended December 31, 1998 as compared to the year ended December 31, 1997. The
financial statements on which this discussion is based have been prepared in
accordance with US GAAP.
Total Revenues
Total revenues include payment for systems integration and consulting
projects, the basic connectivity fee that is paid at the beginning of each
three month period and current usage fees which are invoiced monthly after the
relevant month. The prepaid connectivity fee is recorded under deferred income
and recognized as revenue after the service is provided. System integration and
consulting projects are billed and paid upon completion. Total revenues
increased by 37.3% from ATS 27,390,233 ($2,125,949) in 1997 to ATS 37,617,683
($2,919,773) in 1998. The revenue growth was generated by Vianet's increased
customer base.
Costs of Products Sold
Costs of products sold consist primarily of telecommunications fees, licenses
and marketing. Costs of products sold increased by 37.5% from ATS 12,403,754
($962,743) in 1997 to ATS 17,051,503 ($1,323,487) in 1998. These costs
increased because increased usage by the growing customer base required
upgrades to the network infrastructure for current and future needs.
Research and Development
Research and development costs consist principally of personnel costs,
consulting costs and allocated overhead costs. Vianet had no research and
development costs in 1997 and ATS 1,282,625 ($99,554) of such costs in 1998.
This increase in costs of research and development resulted from activities
related to the enhancement of existing services, the addition of value-added
products and billing flexibility.
General and Administrative
General and administrative costs increased by 39.0% from ATS 14,787,656
($1,147,774) in 1997 to ATS 20,558,892 ($1,595,720) in 1998. This increase in
general and administrative costs resulted from growth in the size of Vianet.
General and administrative costs include primarily salaries and other personnel
costs of Vianet's administrative staff, office rent and other overhead
expenses.
Interest Income and Expense
Interest income decreased by 57.2% from ATS 20,972 ($1,628) in 1997 to ATS
8,966 ($696) in 1998. This decrease resulted from lower bank balances. Interest
income is primarily attributable to short term interest earned on bank
balances. Interest expense increased by 3.0% from ATS 86,212 ($6,692) in 1997
to ATS 88,803 ($6,893) in 1998. This increase resulted from increased short-
term borrowing. Interest expense is primarily attributable to Vianet's
overdraft facility.
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Income Taxes
Vianet received a tax benefit of ATS 4,940 ($383) in 1998 and had income tax
expenses of ATS 193,116 ($14,989) in 1997.
Liquidity and Capital Resources
Overview
Since our inception, we have financed our operations and growth primarily
from the proceeds of private and public sales of equity and debt securities.
Total net proceeds of equity offerings in the three years ended December 31,
1998 amounted to approximately $67,660,706. Additionally, in 1998, our
subsidiaries financed the acquisition of certain equipment with capital lease
obligations. Total net proceeds from the Unit Offering in July 1999, and from
the Discount Notes Offering and the PIK Notes Offering in August 1999, were
approximately $216,861,000.
Cash Flow
Operating activities used cash of $569,685, $1,432,432 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 resulted from increased expenditures
for marketing and research and development. For the six months ended June 30,
1999, operating activities used $11,334,499, compared to $3,133,178 for the
comparable period in 1998. This is principally the result of our net loss in
1999.
Investing activities used cash of $1,532,912, $4,790,473 and $9,928,634 in
each of the three years ended December 31, 1996, 1997 and 1998, respectively.
The large increase in 1998 resulted from the business acquisitions and the
increase in expenditures for property and equipment in that year. Expenditures
for property and equipment consisted principally of purchases of computer
hardware and other expenditures related to our Internet backbone and equipment
necessary to support our anticipated growth. For the six months ended June 30,
1999, investing activities used cash of $36,039,454, compared to $1,452,738 for
the comparable period in 1998. This increase in use of cash represents
primarily our deferred cash payment for the Vianet acquisition, the acquisition
of Flashnet, and purchases of property and equipment.
Net cash provided by financing activities was $2,084,784, $8,644,161 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. In addition, in 1996, we received $2,012,903 in equity investments
from our founders. For the six months ended June 30, 1999, net cash provided by
financing activities was $23,805,141, compared to net cash used of $2,698,286
for the comparable period in 1998. This increase is primarily attributable to
the Interim Loan used to finance the Flashnet acquisition. Subsequent to June
30, 1999 the Company received approximately $216,861,000 of proceeds from notes
issued to investors; of which approximately $22,374,000 was used to pay off the
Interim Loan and $57,466,076 was placed in a collateral account to fund the
first six interest payments on the Notes.
Working Capital
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 working capital, cash and cash equivalents resulted primarily from the
proceeds of our first public equity offering in December 1998 and our private
placements in May 1998 and June 1997.
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On June 30, 1999, our working capital, defined as the excess of our current
assets over our current liabilities, was $(11,562,266), as compared to
$37,750,651 on December 31, 1998. The decrease in working capital resulted from
an increase in short-term borrowings (including the Interim Loan), an increase
in trade accounts payable and other accrued liabilities, as well as an increase
in accrued personnel costs and the current portion of long-term capital lease
obligations. These decreases were only partially offset by increases in cash
and accounts receivable. Our balance sheet as of June 30, 1999, reflects
$7,463,206 for net accounts receivable compared to $3,248,754 on December 31,
1998 and $4,048,784 on March 31, 1999. This increase is attributable to the
large increase in sales (and therefore average accounts receivable balances)
but also collection difficulties at Cybernet AG and at Flashnet, whose balance
sheet was first consolidated on June 30, 1999. We have instituted various
measures which we expect will facilitate collection of these receivables
including realignment of sales force compensation schemes, pre-contract credit
evaluations for both business and residential customers and assignment of
direct responsibility to managers at the subsidiary-level for reductions in
receivables balances.
Credit Arrangements
As of June 30, 1999, the Company had short-term unsecured overdraft
facilities under which the Company and its subsidiaries could borrow up to DM
1,194,445 ($652,267). These facilities are denominated in Deutsche Marks (in
the amount of DM 200,000 ($109,217)), Italian Lire (in the amount of DM 814,202
($444,623)), Austrian Schillings (in the amount of DM 142,140 ($77,621)) and
Swiss Francs (in the amount of DM 38,103 ($20,807)). The interest rates
fluctuate based upon current lending rates. The weighted average borrowing rate
on these facilities was 8.1% as of June 30, 1999. In addition, certain of the
Company's banks provide overdraft protection exceeding the limits specified in
these agreements. As of June 30, 1999, the Company and its subsidiaries had
used DM 835,768 ($456,400). In addition, as of June 30, 1999, the Company had
long-term capitalized lease obligations of DM 3,041,153 ($1,660,729). Amounts
expressed in Deutsche Marks in this paragraph have been translated for
convenience purposes into U.S. dollars at the rate of DM 1.83122 = $1.00 (the
rate implied by the August 3, 1999 Noon Buying Rate of the Euro to the U.S.
dollar).
On June 30, 1999, the Company borrowed (Euro)21,860,554 ($23,347,809) in an
Interim Loan from Lehman Commercial Paper Inc., an affiliate of Lehman Brothers
Inc. and Lehman Brothers International (Europe), and Morgan Stanley Senior
Funding, Inc., an affiliate of Morgan Stanley & Co. Incorporated and Morgan
Stanley & Co. International Limited. The proceeds of the Interim Loan were used
to fund the purchase of Flashnet, the total purchase price of which was valued
as of May 14, 1999, the contract date, at Lit. 54.2 billion ($29.9 million)
consisting of Lit 41.0 billion ($22.6 million) in cash and 301,290 shares of
Cybernet common stock. The Interim Loan was repaid with part of the proceeds of
the Unit Offering on July 12, 1999.
Capital Expenditures
For the six months ended June 30, 1999, capital expenditures totaled
$6,586,968, compared to $1,221,112 for the comparable period in 1998. We funded
these capital expenditures primarily from net cash provided by financing
activities. The major investments by the Company in the first half of 1999
included investments in (i) a class 4 national telecommunications license for
the German market at a cost of DM 3,000,000 ($1,638,256), (ii) progress
payments on the installation of a new billing system totalling approximately
DM 4,705,000 ($2,569,332), (iii) the expansion of leased-line POP's at a cost
of approximately DM 1,700,000 ($928,345) and (iv) various computer and
technical equipment at a cost of approximately DM 1,600,000 ($873,737). We have
budgeted approximately $45.0 million in capital expenditures for the remainder
of 1999. We expect to use these amounts to install carrier grade digital
circuit switches and related equipment in order to offer voice services to our
customers, to build data centers and office infrastructure and for transmission
facilities (including alternative long-haul transmission capabilities) and
related equipment. We also expect to use a portion of these budgeted amounts
for the continued roll-out of our billing system.
We have also entered into long-term data and voice communications agreements
with several vendors. These agreements enable us and our customers to access
data networks necessary for the use of our products
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and services. The minimum payments under these contracts are for an aggregate
of $1,382,228, $84,806, $84,806, $84,806, $16,139 and $80,693 in 1999, 2000,
2001, 2002, 2003 and thereafter, respectively.
Although we expect that the net proceeds of the Private Offerings, together
with internally generated funds, will provide sufficient funds for us to expand
our business as planned and to fund operating cash requirements and capital
expenditures through mid-2000, we are considering offering additional debt
securities in the immediate future. The amount of our future capital
requirements will depend upon many factors including performance of our
business, future acquisitions, the rate and manner in which and the extent to
which it leases, acquires or constructs backbone capacity, increases in
staffing levels and customer growth. These requirements will also depend upon
many factors that are not within our control, including competitive conditions,
governmental and regulatory developments and capital costs. If future sources
of funds prove to be insufficient to fund our growth and operations in the
manner and at the rate currently anticipated, then some or all of our
development and expansion plans could be delayed or abandoned or we could be
required to seek additional funds earlier than currently anticipated, including
from additional debt or equity financings. See "Risk Factors--We Will Need
Additional Capital in the Future."
Valuation Allowance
At December 31, 1998, we had available combined net operating losses carried
forward of approximately $20,230,048, most of which relate to our German
operations. Under the current German tax code, these net operating losses may
be carried forward indefinitely and used to offset our future taxable earnings.
We have not provided any valuation allowance against the deferred tax asset
related to these losses carried forward. However, if we were unable to generate
sufficient taxable income in the future or if the tax law were changed, we
would have to establish a valuation allowance 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 recorded in the first
quarter of 1999 was approximately $550,000.
Seasonality
Our quarterly results are subject to seasonality. We typically experience an
increased level of Internet Project sales in the last fiscal quarter. We also
typically experience a slowdown in the first fiscal quarter in Internet Project
sales because customers refrain from making IT investment decisions until the
completion of CeBit, a major European trade show, which takes place in the
Spring. Network Services results do not typically exhibit the same level of
seasonal variation.
Foreign Currency
Most of our revenues and a significant portion of our expenses are
denominated in Deutsche Marks instead of the dollar, our reporting currency. As
we expand our operations into other European countries (particularly Italy
following the acquisition of Flashnet), we expect that we will continue to
generate revenues in currencies other than the dollar. All of our revenues and
an increasing portion of our expenses continue to be denominated in currencies
other than the currency in which we report our results. Therefore, our reported
results will continue to be impacted by exchange rate movements of these
currencies against the dollar. The funds available from the Unit Offering and
the Discount Notes Offering were denominated in United States dollars and
interest payments on the Notes and the Discount Notes will be made in United
States dollars. As a result, we will be exposed to foreign exchange risks, and
our results of operations likely will be affected by fluctuations in the value
of the local currencies in which we transact business. We do not currently
engage in hedging transactions, however, we may consider entering into such
transactions to reduce the risk of our exposure to currency fluctuations,
including any such fluctuations which may result from having significant
dollar-denominated liabilities after the offering of the Notes and the Discount
Notes.
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Year 2000
The Year 2000 problem results from the fact that many existing computer
programs and systems have used 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 risk related to the Year 2000 problem
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 have tested and analyzed our
systems in the course of regular quality control and research development. We
did not spend significant capital on this evaluation. To date, the only costs
in connection with our Year 2000 evaluation have been limited to internal staff
costs, which have been expensed as incurred. The financial information
contained in this prospectus includes such costs, which are not material. Based
on our experience to date, we do not anticipate that we will be required to
incur significant additional operating expenses or to invest material amounts
to obtain Year 2000 compliance. To respond to our customers' inquiries, we are
in the process of developing a report to inform our customers about the effect
of the Year 2000 problem on our products and services. We anticipate utilizing
an outside consultant to prepare this report at a cost estimated to be DM
50,000 ($26,748).
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 Corporation 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; and
. 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 compliant operations and have
instituted procedures to assure that IT systems installed in 1999 will be Year
2000 compliant. We do not expect compliance with the Year 2000 problem on a
Company-wide basis to require acceleration of planned expenditures for the
purpose of remediation. Because we believe that substantially all our material
systems are Year 2000 compliant, we have not developed a theoretical worst case
analysis or a contingency plan to deal with such a contingency.
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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 secondary 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 third quarter of 1999.
With respect to non-IT systems, our operations do not depend in a significant
manner on embedded technology. All of our desk-top computers and telephones are
Year 2000 compliant. Our offices' climate control systems, elevators and
monitor alarms do have embedded systems. However, our operations do not depend
upon 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 Schilling, 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 continue 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 participating countries or a failure on any participating country's part to
comply with EU directives could have negative economic effects on other
participating countries, including countries in which we operate. Additionally,
the participating countries' pursuit 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 us and our ability to make
payments under the Notes, the Discount Notes and the PIK Notes.
While we believe that our systems have not been adversely impacted by the
Euro conversion and we believe that we are substantially Euro-compliant, 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 operations and our ability to meet our obligations under the Notes,
the Discount Notes and the PIK Notes.
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QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We do not utilize market-risk-sensitive instruments, such as derivative
financial instruments. Our primary market risk is in the area of interest rate
and foreign currency exchange rate fluctuations.
We maintain our cash balances in deposits at banks and in highly liquid
short-term investments, such as money market mutual funds, therefore lowering
our exposure to interest income risks.
As a result of our Unit Offering in July 1999 and Discount Notes Offering in
August 1999, we have a substantial amount of debt in United States dollars.
While our reporting currency is United States dollars, our functional currency
is the Deutsche Mark and significant fluctuations in the United States dollar
to Deutsche Mark exchange rate could have an adverse impact on the amount of
Deutsche Marks required to satisfy this debt. We estimate that a 10% increase
in the exchange rates between the Deutsche Mark and the United States dollar
would increase the Deutsche Mark amount required to settle the debt outstanding
from the Unit Offering and the Discount Notes Offering by approximately
$20,000,000.
All of our revenues and a significant portion of our expenses are denominated
in currencies other than our reporting currency, the United States dollar.
Approximately 89% of our revenues in 1998 were denominated in Deutsche Mark
and, as such, the majority of our foreign exchange rate exposure relates to the
translation of our Deutsche Mark financial statements into United States
dollars which is impacted by changes in the exchange rates between the Euro and
the United States dollar. We prepared a sensitivity analysis to assess the
impact of exchange rate fluctuations on our 1998 operating results. Based on
this analysis, we estimated that a ten percent adverse change in the exchange
rates between the Deutsche Mark and the United States dollar would have
increased our reported net loss for 1998 by approximately $530,300. Our
analysis also indicated that a ten percent decrease in the exchange rate
between the United States dollar and the Deutsche Mark would result in a
decrease of our June 30, 1999 net assets of approximately $5,230,000.
We have not entered into any derivative hedging instruments to reduce the
risk of exchange rate fluctuations.
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BUSINESS
We began our operations with the formation of 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 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 Cybernet Delaware, and the Delaware
corporation is the surviving entity of the merger. On June 30, 1999, we
consummated our acquisition of all of the issued and outstanding capital stock
of Flashnet, a leading ISP based in Rome, Italy. The terms "Company,"
"Cybernet," "we," "us" and "our" refer to Cybernet Delaware and its
subsidiaries as a combined entity, except where its use is such that it is
clear that such term means only Cybernet Delaware.
Overview
Through our subsidiaries, we are a leading provider of Internet
communications services and solutions in Germany, Austria, Italy and
Switzerland targeting small- to medium-sized enterprises. Our IP solutions are
based on a core product offering consisting of Internet connectivity and value-
added services. Such value-added services include VPNs, web-hosting, co-
location, security solutions, electronic commerce, Intranet/Extranet and
workflow solutions. We offer consulting, design and installation, training,
technical support, and operation and monitoring of IP-based systems. We market
our products and services primarily to small- and medium-sized enterprises in
Europe because we believe that they represent an underserved and sizeable
market. Companies in this market are characterized by a lack of internal
technical resources, rapidly expanding communications needs and a high
propensity to utilize third-party outsourcing. We are recognized as a provider
of high quality Internet connectivity services and solutions to enterprises and
as one of Germany's leading Internet access providers. Recently, IT Services, a
leading German computer magazine, ranked us number one among German ISPs in
terms of infrastructure, international outlook and customer service.
Our mission is to become a leading European provider of IP-based
communications services and network-based business solutions. We intend to
continue to focus on small- and medium-sized enterprises in Europe, offering a
full portfolio of advanced communications products, including Internet access
and value added services, as well as data and switched voice services.
We believe that our capabilities in Internet, telecommunications and systems
integration services differentiate us from many of our competitors who offer
some, but not all, of the products and services that we offer. We approach and
win business customers by offering and designing a full range of services and
solutions for mission critical communications needs, such as electronic
commerce solutions, Intranets and VPNs. This enables us to work directly with
different levels of our customers' organizations, to participate in the design
of customers' systems and to offer additional network and communications
services as our customers' businesses grow and their needs change. By basing
our solutions upon product modules, we are able to meet our customers'
individual needs at competitive prices, while realizing higher margins by
reducing costs through standardization. Also, as a result of the high quality
of our services and the value-added nature of our solutions, we believe that we
experience higher customer retention rates and that we are less vulnerable to
pricing pressures than many of our competitors in the telecommunications and
Internet industries.
We sell our services and solutions primarily through our direct sales force.
Most of our sales people are based in regional offices and are supported by
specialized technical and commercial assistance from our customer care centers
in Munich, Vienna, Zurich, Rome and Trento. We complement our direct sales
effort with an extensive reseller and referral network of over 100 companies
and by forming marketing alliances with technology leaders such as Hewlett-
Packard, Microsoft, Network Associates, Sun Microsystems and Nokia Italia.
While our reseller arrangements begin with sales of our basic product
offerings, such as connectivity, they can lead to direct sales by us of more
complex solutions, such as security solutions or VPNs.
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<PAGE>
We operate a geographically distributed IP network based upon leased lines.
Our network is spread over six countries and consists of network nodes equipped
primarily with Cisco and Ascend routers connected to a redundant high-
performance backbone infrastructure. We help corporate customers reduce
telecommunications costs by offering Internet connectivity through dedicated
lines at 56 directly owned Points of Presence ("POPs"). We also offer a system
of dial-in nodes with ISDN or analog modem ports to smaller enterprises,
employees and affiliates of corporate customers. These nodes permit local dial-
in access throughout Germany, Italy and Switzerland and most of Austria.
Flashnet owns 20 of these POPs for dedicated lines (which can also accommodate
dial-in traffic) and has access to more than 300 dial-in access nodes.
Recently, we reorganized our dial-in network in Germany by concentrating
multiple dial-in access nodes into larger access points called "Virtual POPs,"
which use a Public Switched Telephone Network ("PSTN") to aggregate traffic. We
expect this will generate operating efficiencies, in that there will be fewer
overall nodes to service. We are expanding our network across Germany, Austria,
Italy and Switzerland by installing additional POPs and replacing dial-in
access nodes with Virtual POPs.
We also plan to add digital circuit switching capabilities to our network to
offer switched voice telecommunications services to our customers, capture more
revenues from dial-in traffic and provide termination services to other
carriers by layering switched voice capability onto our expanded leased line
network. For these purposes, we require: (i) licenses to offer voice telephone
services in Germany, Austria, Italy and Switzerland; (ii) up to nine carrier
grade digital circuit switches; (iii) a billing system capable of capturing the
necessary data and generating invoices to our customers; and (iv)
interconnection agreements with incumbent operators and other
telecommunications carriers. In Germany, we have: (i) obtained a license to
offer voice telephone services in the entire country; (ii) ordered six Nortel
DMS-100 switches; (iii) installed the Kenan billing system; and (iv) begun
negotiations for an interconnection agreement with both Deutsche Telekom and
Telecom Italia. In order to enable us to begin offering voice telephone service
before our own switched voice network starts operating in the fourth quarter of
1999, we have entered into an interim agreement with a third-party carrier. In
Austria and Switzerland, we have begun the process of obtaining
telecommunications licenses. In Italy, our subsidiary Flashnet has a license to
provide voice services throughout the entire country.
We have increased our revenues from $0.3 million in 1996 to $8.6 million in
1998 ($17.4 million pro forma for acquisitions, including Flashnet). As of
March 31, 1999, we provided services to approximately 10,800 business
customers, an increase from approximately 200 customers at December 31, 1996.
The majority of these customers are small- to medium-sized enterprises. We also
provide services to larger companies and organizations such as BASF
Corporation, German Parcel, Commerzbank, Hewlett-Packard, Start Media Plus,
DaimlerChrysler Aerospace Dornier, BMW Financial Services, Raiffeisenbank,
Zuegg, Honeywell, Lauda Air, Modern Times, Amadeus, Lufthansa and News. As of
March 31, 1999, Flashnet had approximately 1,600 business customers and 38,000
residential customers, including large organizations such as Nokia Italia, ERG,
Avis, Ferrovie dello Stato (Italian Railways) and the Italian Parliament.
Our management team consists of individuals with extensive Internet, IT and
telecommunications expertise. Andreas Eder, co-founder and Chief Executive
Officer, previously held various positions at Siemens-Nixdorf Information
Systems and The Boston Consulting Group. Dr. Alessandro Giacalone, Chief
Operating Officer, previously headed the European-Industry Computer Research
Center and established it as a leading German ISP. He was also a Professor of
Computer Science at the State University of New York at Stony Brook. Robert
Eckert, our Chief Financial Officer, was previously with Netsource A/S,
Swisscom International, and General Electric (USA). Walter Franz, who is
principally responsible for our network, was director of network operations for
MCI/WorldCom in Germany and also worked for MFS Telecommunications and
Motorola. In addition, we have recruited individuals at various managerial
levels from leading industry participants such as AT&T/Unisource, British
Telecommunications and Deutsche Telekom. Our policy is to retain the key
executives of the companies we acquire. To this end, we typically structure our
acquisitions to give such executives an equity participation in the future
success of our Company. We have retained most of the key managers in our
acquisitions.
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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, Advanced
Research Projects Agency (ARPANET) to enable scientists at universities to
share information and to develop a secure network. Use of the Internet has
grown rapidly since its initial commercialization in the early 1990s.
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 compound annual rate of 36.0%. Consumers and companies in the United
States have spearheaded the 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 has become an important commercial 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 performance, scalability
and expert management 24 hours a day, 7 days a week.
Companies generally 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.
The Internet is experiencing rapid growth rates in Europe. According to IDC,
the number of Internet users in Europe reached 16.8 million in 1997 and is
expected to reach 82.0 million in 2002. Datamonitor, another market research
organization, estimates that the number of externally hosted commercial
websites 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 websites 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 and increased availability of
bandwidth, resulting in faster and 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.
Europe lags the United States in terms of total Internet users, Internet
users as a percentage of population, and personal computers ("PCs") with
Internet access. An historical comparison reveals that Europe is between one
and two years behind the United States when the selected indicators are
considered. We expect European Internet usage to follow historical United
States growth rates and achieve current United States levels within one to two
years. The following table provides information about current and projected
Internet usage in Europe and the United States.
<TABLE>
<CAPTION>
Europe United States
------------ --------------------------
1997 2002E 1995 1996 1997 2002E
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Internet users (millions)........... 16.8 82.0 9.7 23.2 38.7 135.9
Population (millions)............... 386.0 388.4 263.0 265.4 267.9 279.5
Internet users as a percent of
population......................... 4.4% 21.1% 3.7% 8.7% 14.4% 48.6%
PCs with internet access............ 19.7% 57.1% 11.5% 23.8% 36.3% 84.3%
</TABLE>
- --------
Sources: IDC Corporation; population and Internet users as a percent of
population are based upon population figures provided by the United
States Bureau of the Census.
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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 we believe currently
presents a growth opportunity. The following table summarizes certain
information and estimates about revenues from Internet connectivity and from
Internet hosting and VPNs in European countries.
<TABLE>
<CAPTION>
Connectivity Hosting and VPN
--------------------------------------------- ---------------------------------------------
Anticipated Anticipated
1997 2000E Change 1997 2000E Change
($ in millions) ($ in millions) (%) per annum ($ in millions) ($ in millions) (%) per annum
--------------- --------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Finland................. 17 42 35.2% 1 20 171.4%
France.................. 94 383 59.7% 3 92 213.0%
Germany................. 447 1,084 34.4% 16 184 125.7%
Italy................... 30 169 77.9% 5 50 115.4%
Netherlands............. 28 85 44.8% 6 42 91.3%
Spain................... 35 136 57.2% 2 31 49.3%
Sweden.................. 31 67 29.3% 4 34 104.1%
United Kingdom.......... 154 381 35.2% 16 146 109.0%
Other (*)............... 83 272 48.5% 23 123 74.9%
--- ----- ---- --- --- -----
Total................. 919 2,619 41.8% 76 722 111.8%
=== ===== ==== === === =====
</TABLE>
- --------
(*)Other includes Austria, Belgium, Ireland, Norway, Portugal and Switzerland.
Source: Datamonitor.
Datamonitor reports that the European corporate Internet connectivity market
consisted of 1.2 million accounts and generated total revenues of $919 million
in 1997. It estimates that corporate connectivity revenues will grow to $2.6
billion in 2000, a compound annual growth rate of 41.8%.
Datamonitor also reports that in 1997, European Internet value-added services
generated revenues of $287 million. It estimates that revenues from value-added
services will increase to $1.7 billion in 2000, a compound 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 compound annual growth
rate of 111.8%.
We consider Germany to be the most important connectivity market in Europe in
terms of revenues, with a highly developed consumer and business on-line
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 many small providers. We
expect that connectivity revenues in Italy will grow at one of the fastest
rates in Europe, particularly northern and central Italy, because much of
Italian business is concentrated in that area. We believe our acquisition of
Flashnet will permit us to take advantage of this growth opportunity.
Business Strategy
Our objective is to become a leading provider of communications services and
network-based business solutions to small- to medium-sized enterprises in
Europe. We currently offer a full-service portfolio of advanced communications
products including Internet access and value-added services, as well as
switched voice services. The principal elements of our business strategy are as
follows:
Target Small- to Medium-Sized Business Enterprises. We focus on small- to
medium-sized enterprises. In Germany, we focus on companies that typically have
revenues between (Euro)25 million and (Euro)500 million.
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According to Statistisches Bundesamt, a German government agency, such
companies generate 45% of Germany's total corporate revenues. In other
countries, the revenues of small- to medium-sized enterprises as a portion of
total corporate revenues vary. We believe that this customer segment is
underserved and has substantial and increasing communications needs. Small- to
medium-sized enterprises 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 IT, tourism, retail, finance, government, media
and advertising. For many of these industries, utilization of the Internet has
become essential. In certain markets, we also serve high-end residential
customers.
Initiate Long-Term Relationships with Customers Through Local Coverage and at
an Early Stage. Unlike some of our competitors, we use strong local management
teams to address the needs of our customers. Most of our sales people are based
in regional offices and are supported by specialized technical and commercial
assistance from our offices in Munich, Vienna, Zurich, Rome and Trento. This
strategy allows us to initiate close relationships with our customers at an
early stage of their Internet services requirements, engage in strategic
discussions with senior management about their communications requirements,
participate in the design of their systems, 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.
This also enables us to offer additional solutions to our customers without
having to compete primarily on price.
Develop Total Communications Offering. We currently offer both Internet
connectivity services and modular Internet business solutions to our customers.
Our modular solutions include web-hosting and -housing, VPNs, security
solutions, electronic commerce solutions and Intranet and workflow solutions.
As technology evolves, we intend to broaden our product offering to include
additional services, solutions and innovations that have proven reliable and
effective. In June 1999, we started offering voice services. Our ability to
offer voice services will allow us to provide one-stop shopping for integrated
voice and data solutions. We believe IP technology and IP applications will be
the primary platform and interface for business data and voice communications
in the future.
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, Microsoft, Network
Associates, and Sun Microsystems. We are expanding our direct sales force and
regional offices to increase our local coverage. We currently have 19 sales
offices (seven in Germany, one in Austria, nine in Italy and two in
Switzerland), and we plan to increase this 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 potential customer
contacts.
Control Our Network. We consider it strategically important to control and
operate our own network infrastructure. This will enable us to: (i) maximize
revenues by offering total communications services, including broad band and
voice services; (ii) achieve the highest levels of service quality and
reliability; and (iii) reduce transmission costs. This involves:
. optimizing the configuration of our IP network, by concentrating
international access at a few select locations where the cost of global
access can be minimized; concentrating network planning and management
in one central location; and planning the network's redundancy on a pan-
European basis rather than on a local basis;
. establishing up to nine large-scale data centers to enhance our co-
location and housing service offering;
. acquiring up to nine carrier grade digital circuit switches to be
installed in key cities; and
. leasing transmission capacity on a long-term basis, acquiring backbone
capacity, or constructing our own infrastructure in selected locations,
to transport high bandwidth data and voice services over all available
transmission protocols (including alternative long-haul transmission
media such as microwave).
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Accelerate Growth in Europe Through Targeted Acquisitions. To date, we have
successfully integrated three acquisitions. We have recently acquired three
additional companies which we are in the process of integrating. We will seek
to acquire additional Internet-related companies to strengthen our presence in
other European countries, while continuing to grow internally. We look for
strategically and culturally compatible companies to add to our strong
management, enhance our technical expertise, and enhance our customer base in
our current coverage area and bordering countries.
Products and Services
We currently offer a comprehensive range of Internet connectivity services,
network solutions and business solutions to enterprises in Germany, Austria,
Italy, and Switzerland and have started to offer voice services.
Connectivity Services
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 dedicated line connectivity at speeds
ranging from 64 Kbps to multiples of 2 Mbps. We offer Internet connectivity to
our corporate customers through dedicated lines at our 56 directly owned POPs.
We also provide both analog and ISDN dial-in Internet access throughout
Germany, Italy and Switzerland as well as throughout most of Austria. In
Germany, Italy and Switzerland dial-in service allows our customers to dial
into one nation-wide number to access the Internet at local telephone rates.
Our dial-in services in Austria utilize dial-in access nodes, each of which has
its own dial-in number. We have seven such dial-in access nodes in Austria. At
present, we offer our dial-in service through third party telephone networks.
As we introduce our interconnection and switching capabilities, we plan to
offer dial-in access at a cost approximating that of a local call and also to
charge the customer for telephone minutes. Outside the countries in which we
operate, we offer roaming at local call rates in cooperation with more than 350
international ISPs and telecommunications companies which have joined the
Global Reach Internet Connection.
We offer third-party software products such as 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. We also provide router services such as router renting,
configuration, supervision and maintenance. Overall, we are able to offer
customers a full portfolio of services with managed connectivity. Our principal
connectivity services include:
<TABLE>
<CAPTION>
Product Name Characteristics
------------ ---------------
<S> <C>
Personal Connect, Office Single user dial-up services, with dynamic IP address and
Connect, Call & Surf, access speeds of up to 64 Kbps. Selection of usage-based
Call-to-Intranet or flat rate tariffs, including dial-in telephony costs
(except Personal Connect and Office Connect).
Business Connect, Call & Multi user dial-up service for workgroups, with multiple
Surf for Workgroups, IP addresses and access speeds of up to 128 Kbps.
Call-to-Intranet for Services provided via Local Area Networks ("LANs") with
Workgroups Ascend Pipeline 50/75 routers. Selection of usage-based
or flat rate tariffs, including dial-in telephony costs
(except Business Connect).
Business Line, Campus Leased line service for workgroups, with multiple IP
Line addresses and access speeds of up to 2 Mbps. Service
provided via LANs and Cisco 16xx routers. Selection of
usage-based and flat rate tariffs.
</TABLE>
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Network Solutions
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 with the added benefit of secure
remote access. In addition, our VPN products are often the basis for Intranet
services (connectivity of branch offices, teleworkers and mobile workforce) and
Extranet services (connectivity of business partners, suppliers and customers)
services. We offer these products in conjunction with additional hardware and
software solutions, as well as continuous operation and maintenance, customer
care and billing services. Flashnet offers a product called ALL IN ONE, an all
inclusive solution including combinations of data transmission, Internet access
and voice-over IP, representing the ideal platform to build VPNs for customers.
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, firewall and
authentication packages. 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 VPNs or Intranets. Our
principal security solutions include:
<TABLE>
<CAPTION>
Product Name Characteristics
------------ ---------------
<S> <C>
Firewall 1, Gauntlet Third-party firewall software tailored to customer
requirements.
ACE / Server, SecurID Third-party authentication hardware and software.
Token
Idea@Exchange--Secure Third-party software for encryption of electronic mail
Messaging traffic tailored to customer requirements.
Business Solutions
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, with full-time connection to the Internet,
direct access to our high-speed network, uninterrupted power supply, regular
back-up and monitoring and technical support 24 hours a day, seven days a week.
Our principal co-location services include:
<CAPTION>
Product Name Characteristics
------------ ---------------
<S> <C>
Server Housing Flexible service offering ranging from simple co-location
to dedicated ports and back-up facilities.
Rent-a-Server Rental of various high-end server types.
</TABLE>
Application and Website Hosting. We offer shared server application and
website hosting services, which permit corporations to market themselves and
their products on the Internet without having to invest in independent
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 continuously maintained data centers. Applications
on our servers, which our customers can access, include shop and mall systems,
payment systems, publishing systems 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
shop or mall, credit verification and payment handling verification. These
systems are
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based on our electronic commerce platform which integrates systems and
technologies of third-party vendors, such as Brokat, Hewlett-Packard,
Intershop, Microsoft, SAP, Sun Microsystems, VeriFone 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 establish a distribution channel for products or a channel for purchasing,
and to determine whether to invest in a dedicated system. Our principal
electronic commerce services include:
<TABLE>
<CAPTION>
Product Name Characteristics
------------ ---------------
<S> <C>
Online Shopping-- Online shopping site hosted by Cybernet on a low cost
Cybernet Shop Hosting monthly rental basis, which is based on shop software
from Intershop and Beans, among others. Administration is
conducted via Internet.
Online Shopping-- Full license online shopping customized by Cybernet,
Cybernet Shop License based on Intershop, Microsoft Site Server and Openshop,
Model among others. Integration of an inventory control system
is possible.
Online Shopping-- Complex shop or mall applications, tailored to customer
Cybernet Shop and Mall requirements. Integration of an inventory control system
and/or special modules (e.g., customer retention) is
possible.
Imperia Website management system which facilitates the
administration and creation of new websites.
Digital Order Business-to-business system for the digital integration
of procurement processes, hosted on a Cybernet platform.
Auction Server Hosted module for on-line live auctions, providing
different auction rules and methods.
PictureBase Hosted on-line database to present, sell and archive
digital pictures through the Internet. Integration of
electronic payment is possible.
</TABLE>
Intranet and Workflow Solutions. Internet technologies can be utilized in a
customers' 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-in and leased line connectivity with IP-based VPNs and a
communications infrastructure that includes facsimile, voice mail, electronic
mail and enhanced security solutions. Our principal Intranet and workflow
solutions include:
<TABLE>
<CAPTION>
Product Name Characteristics
------------ ---------------
<S> <C>
Faxination--Unified Third-party hardware and software which transforms
Messaging Server messages and documents from one medium into another
(e.g., fax to electronic mail, electronic mail to voice).
Service accessible via PSTN line.
Teleworkx Bundle of Cybernet and third-party hardware and software
targeted at teleworkers.
Intranet Access Control Third-party software which grants secure and controlled
access for teleworkers to the Intranet.
</TABLE>
Voice Services
Since June 1999, we have been offering switched voice services to our IP-
based customers, as well as value-added and integrated solutions combining
switched voice solutions and IP solutions. We also envision offering wholesale
services to other carriers on a case-by-case basis.
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Initially, pending completion of our own interconnect arrangements, these
services are offered in co-operation with a third-party telecommunications
operator. As we complete the implementation of our own voice switching
capabilities and leased line network, we anticipate capturing more dial-up
revenues and reducing our transmission costs.
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 medium-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; and
. to customers with basic service needs, we provide services which require
minimal customization and installation, such as Internet connectivity.
Flashnet provides consumer customers in Italy with dial-in access services
that are delivered through an easy to implement Internet kit. Flashnet also
simplifies customer payment by issuing rechargeable cards. We believe that
Flashnet is the first ISP in Italy to implement use of this payment method.
Direct Sales. Currently, our direct sales force consists of approximately 81
sales representatives located in 19 offices in Cologne, Frankfurt, Dusseldorf,
Berlin, Munich, Stuttgart, Hamburg, Vienna, Trento, Rome, Milan, Bologna,
Venice, Florence, Padua, Verona, Zurich and Lausanne. 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 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 IT,
tourism, retail, finance, government, media and advertising.
Channel Sales and Partnerships. Our channel sales group develops
relationships with 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, 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. In addition, we 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 acquire new
customers cost effectively, benefit from association with well-known partners
and increase our brand awareness. We currently have marketing alliances with
Hewlett-Packard, Microsoft, Network Associates, Sun Microsystems and others. In
Italy, Flashnet uses a network of approximately 240 computer stores (Flashnet
Points) as its primary means of marketing to consumer customers.
We intend to conduct our operations and marketing under the Cybernet brand
name, although we use subsidiary brand names 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.
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Technology and Network Operations
Overview
The IP network of an ISP consists of a number of access nodes linked by owned
or leased lines. Access nodes are used to provide our customers with access to
our network either through dedicated lines or regular telephone lines (dial-in
access). The IP traffic generated at each access node is carried through our
backbone network to points of traffic exchange, where traffic is exchanged with
other providers' networks. These points of traffic exchange can be of two
types: peering points or transit points. Peering points provide for the free
exchange of traffic pursuant to agreements between ISPs. Transit points provide
global connectivity which we purchase from international carriers.
IP Network
We currently operate a geographically distributed IP based network in six
countries (Germany, Switzerland, Austria, Italy, Hungary and Luxembourg)
consisting of network nodes equipped primarily with Cisco and Ascend routers
connected to a redundant high-performance backbone infrastructure. The network
nodes are connected primarily by leased lines and include fourteen POPs in
Germany, 26 POPs in Italy, seven POPs in Austria and three POPs in Switzerland,
and a single POP in Luxembourg and Budapest. We lease our lines from major
telecommunications carriers and backbone operators, such as Deutsche Telekom,
Telecom Italia, Swisscom, Telekom Austria and Hermes Europe Rail Tel. We also
operate two microwave links that connect Munich with Innsbruck and the Italian
border at speeds of 34 Mbps. Our network nodes are interconnected at E-1 to DS3
speeds. We offer our dedicated line customers direct access to our POPs at
bandwidths ranging from 64 kbps to DS3. We have at present approximately 475
customers using dedicated line access. We believe our network is recognized as
one of Germany's most extensive and highest quality Internet networks. In 1999,
we expect to expand our network to include POPs in eleven additional cities in
Germany, and seven cities in Switzerland. We intend to acquire or enter into
long-term leases for backbone capacity or construct our own infrastructure in
selected locations in order to transport high bandwidth data and voice services
over all available transmission protocols, at lower costs than using leased
lines.
Our IP network is designed to offer reliability, scalability and high
transmission speed to our customers. We achieve reliability by operating a
fault tolerant network through our redundant backbone in Germany, Austria,
Switzerland and Northern Italy, which is based on a hierarchical multiple ring
design. We include back-up routers in our access nodes to attain further
redundancy, and thereby minimize the risk of single points of failure. To
ensure constant worldwide connectivity, we use multiple global access
providers. In Italy, Flashnet's extensive network is based on a star design and
achieves redundancy through back-up leased lines. We derive scalability from a
hierarchical multi-layer architecture that offers the opportunity to add
network locations without major infrastructure changes. We offer transmission
capacities ranging from 64 kbps to DS3 and intend to upgrade parts of our
network to STM-1 capacity in the near future. In addition, our network includes
cache servers in the major POPs to reduce the delivery time of regularly
requested information and reduce bandwidth needs for international traffic.
We offer dial-in Internet access through dial-in nodes with analog and ISDN
ports that provide coverage throughout Germany, Italy and Switzerland and
throughout most of Austria. In Germany, we have completed our BELT project,
which enables us to offer local dial-in connections to our customers throughout
the country with a single dial-in number. We have achieved this by
concentrating multiple dial-in access nodes into four larger access points
called virtual POPs, using the PSTN to aggregate traffic. We expect that these
virtual POPs will generate operating efficiencies, because there will be fewer
locations we will be required to service. We already offer local dial-in access
through a single dial-in number in Switzerland and Italy. In Austria, our
dial-in customers can access our network through seven telephone numbers.
Peering and Transit Relationships. We have entered into peering agreements
with major ISPs in each of the countries in which we operate. We have peering
agreements with more than 25 ISPs in Germany and with
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the principal ISPs in Austria, Italy and Switzerland. Our main peering points
are in Frankfurt, Munich, Milan, Rome, Trento, Vienna and Zurich. We also peer
directly through leased lines connected to some of our peering partners, such
as Deutsche Telekom. 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. By the end of 1999, we expect to connect to peering
points in France, Belgium, The Netherlands and the United Kingdom. Recently,
some ISPs have restricted peering agreements by implementing restrictive
criteria for small ISPs. We believe that our size and growth prospects will
allow us to maintain and extend our existing agreements.
We have entered into global transit agreements pursuant to which we have
purchased the right to route traffic across the networks maintained by Ebone,
Global One, Swisscom, AT&T Corporation/Unisource and MCI Worldcom. This
provides our customers with the ability to communicate with those European
countries in which we are not present, and with the rest of the world.
Frankfurt, Munich, Vienna and Zurich currently serve as our global access
points.
Network Management
The effective functioning of our network is one of the key elements of our
operations. We have developed network management capabilities to offer reliable
and cost efficient communications services and to deliver high quality services
to our customers. Our Network Operations Centers ("NOCs") in Munich, Vienna,
Zurich and Trento, monitor the performance of our network and our international
links 24 hours a day and seven days a week. Our NOCs have the capability to
identify network problems on a real-time basis. Our technical support groups
are equipped to take the necessary corrective measures quickly. By the second
quarter of 2001, we intend to centralize our NOCs in a single facility in
Munich.
Data Centers
We house servers in our data centers that are linked to our network. We
currently operate data centers in Munich, Frankfurt, Vienna and Rome. Our main
data center in Munich has a capacity of 300 square meters. We intend to
establish additional data centers in Dusseldorf, Frankfurt, Hamburg, Munich,
Vienna, Trento, Rome, Milan and Zurich. These data centers will be co-located
with certain of our IP nodes (POPs) and switching facilities, and we expect
some of them to be operational in the fourth quarter of 1999 and all of them to
be operational by the third quarter of 2000. We have already signed leases for
the facilities in Hamburg, Frankfurt, Trento, Milan, Rome and Munich. Each of
these facilities will be approximately 2,000 square meters in size. We are
designing these facilities to house transmission, IP routing and switching
equipment, and to offer hosting, co-location, facilities management and
interconnection services to our corporate customers, ISPs and
telecommunications carriers. Each facility will offer uninterruptible power
supply and back-up generators, air-conditioning, constant monitoring and
physical security to ensure a high quality of service with minimal
interruptions.
Switched Voice
We intend to expand our revenues in the fourth quarter of 1999 by adding
digital circuit switching capabilities to our network. Until we finalize the
installation of our switches and negotiate interconnection agreements, we will
be able to offer switched voice services using a third-party provider. We are
installing carrier grade Nortel DMS-100 voice switches in Germany, Italy,
Austria and Switzerland. In Germany, we have obtained a class 4 license, which
is necessary to offer telephony services. We expect to interconnect with
Deutsche Telekom at multiple points of interconnection, thereby minimizing our
interconnection costs in the German market. Our subsidiary Flashnet has a
telephony license to offer voice services throughout Italy and we are currently
in negotiations with Telecom Italia for an interconnection agreement. We have
applied for national licenses to offer switched services and started the
process of entering into interconnection agreements in Switzerland and Austria.
We expect our switched network to start operating in the first quarter of 2000
and be fully operational by the end of that year. We have recently completed
the installation of our integrated billing system through which we expect to be
able to provide a single bill to our German customers for voice
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and IP services. Over time, we plan to centralize our billing and provide
integrated bills to the customers in all of the countries we service.
Customers
As of March 31, 1999, we provided network services to 10,830 business
customers (including customers served through affinity groups), as compared to
6,923 as of December 31, 1998, 4,061 as of December 31, 1997 and 166 as of
December 31, 1996. As of March 31, 1999, we had 4,735 affinity group customers,
as compared to 3,846 as of December 31, 1998, and 1,941 as of December 31,
1997. At year-end 1996, we had no affinity group customers. During the three
months ended March 31, 1999, we completed Internet Projects for 19 customers,
as compared to 122 customers in 1998, 49 customers in 1997 and 12 customers in
1996.
While our target market is the small- and medium-sized corporations, we also
provide services and solutions to prominent larger businesses. Through our
subsidiary Flashnet, we also serve consumer customers in Italy. As of March 31,
1999, Flashnet had 1,625 business customers and 38,269 residential customers,
as compared to 1,096 business customers and 31,556 residential customers as of
December 31, 1998.
Our customers include businesses in IT, tourism, service, retail, finance,
government, media and advertising and manufacturing. Following is a list of
certain business groups in each of seven selected industry groups to which we
provided services and solutions as of December 31, 1998.
* Information Technology * Finance
CompuNet AXA Nordstern Colonia
Cyberlab Interactive HypoVereinsbank
Hogatex BMW Leasing
Info AG Commerzbank
InstallShield Software GE Capital Finance
Prism Software Engineering VR--Leasing
CompuServe Interactive Service
Internet Consulting * Government
Swissdata
Federal YZK Office
* Travel and Tourism Regulierungsbehoerde fur
Telekommunikation und Post
Frosch Touristik Bundesdruckerei
START AMADEUS Ministerium fur Wissenschaft
START Media Plus Stadtwerke Karlsruhe
Lauda Air
* Media and Advertising
* Retail
Finanzen-Verlag
Eddie Bauer Media Consulting
F.W. Woolworth Co. ORF Modern Times
Suzuki Auto
Tengelmann * Manufacturing
Wrigley
Zuegg Bayer
Daimler Chrysler Aerospace
Hugo Matthaes Druckerei
Nokia Italia
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
field engineers. The NOC-based technicians respond to customer requests 24
hours a day, seven days a week, diagnosing customers'
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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 field engineers are available to visit our customers' premises, as
necessary.
Our call center provides complete information and specifications about each
of our products and advises our customers on service and solutions related
questions.
We have purchased and installed and are in the process of implementing an
integrated billing system for Internet and switched voice services and are in
the process of introducing this new system to our customers. We have licensed
the Kenan billing platform and have adapted it to our requirements.
Implementation of this system caused some delay in our processing of customer
invoices in the first quarter of 1999. We do not expect those problems to
recur. Kenan, a subsidiary of Lucent Technologies, is a leading provider of
billing solutions to the telecommunications industry. Initially, this system
will allow us to provide a single bill to our German customers for all the
different services they are purchasing from us, thereby simplifying their
internal operations and reducing our costs. In the year 2000, we intend to
adopt the use of this integrated billing system on a Company-wide basis and to
manage it from our central offices in Munich.
Acquisitions
Since we began business in 1996, we have acquired six companies through which
we have expanded our technical capabilities, attracted additional talent,
entered new markets and increased our customer base:
. Cybernet E-Commerce. In September 1997, we acquired 100% of Artwise
which was later renamed Cybernet E-Commerce, a German company which
provided us with expertise in Intranet messaging and workflow solutions
and established our presence in the Ulm region of Germany;
. Eclipse. In December 1997, we acquired 66% of Eclipse, an ISP based in
Trento, Italy, through which we established our presence in Northern
Italy;
. Open:Net. In August 1998, we acquired 100% of Open:Net, an ISP through
which we increased our penetration of the southwest German market
serviced by Artwise;
. Vianet. In December 1998, we acquired 100% of Vianet, a leading Austrian
ISP through which we entered the Austrian market and significantly
increased our customer base;
. Sunweb. In May 1999, we acquired 51% and an option to purchase the
remaining 49% of Sunweb, through which we established a presence in
Switzerland and acquired substantial additional expertise in switched
voice services; and
. Flashnet. In June 1999, we acquired 100% of Flashnet, a leading Italian
ISP through which we gained access to all major business centers in
Italy.
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 carrier, 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; Nacamar; PSINet; UUNet Technologies; and Xlink. In Austria, they
include Cybertron, EUnet Multimedia Network Services and Netway Austria; and in
Italy, they include I-Net.
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Telecommunications carriers
Many telecommunications carriers are large organizations and do not 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,
Deutsche Telekom and Viag Interkom. In Austria, our principal carrier
competitors are Telekom Austria, United Telecom and Tele.ring. And in Italy,
they are Infostrada, Telecom Italia and Wind.
When we begin to offer voice services, we will compete directly with
carriers, including large carriers such as Mannesman Arcor, Deutsche Telekom
and Viag Interkom in that 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 we
do. 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
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 and IBM, provide IT 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 fact, some system integrators and
computer manufacturers utilize our connectivity services and solutions to
complement their own lines 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 you that future advances in technology will be
beneficial to, or compatible with, our business or that we will be able to
incorporate into our business such advances on a cost effective and timely
basis. 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.
Intellectual Property Rights
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. In this regard, we have
applied to the EU for a trademark registration for the name "Cybernet." 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
consultants, vendors, suppliers, distributors and appropriate customers in
order to limit access to and disclosure of our technology, documentation and
other proprietary information. 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
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technologies. The laws of the countries in which 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
are claimed to 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 materially
adversely affect our business, results of operations and financial condition.
Regulation
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 controversy regarding the application of value-added taxes in the Internet
environment. The adoption of new laws could materially adversely affect 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 abolished
the monopoly rights of incumbent operators 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) the absence of interference with personal and intellectual
property rights in telecommunications traffic; and (iv) effective competition
in the provision of telecommunications services.
In each of the countries in which we operate, providing telecommunications
services and related facilities requires a license. 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 the countries in which we operate, 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) in Germany. Geographically this license covers the
entire Federal Republic of Germany and is valid indefinitely. We have not yet
obtained similar licenses for Switzerland or Austria, which we will require to
expand our business as we currently plan. In Italy, our subsidiary Flashnet has
a license which permits us to offer voice telephone services in the entire
country. We have also obtained a "class 3 license" in Germany which permits us
to operate cables, radio links and other telecommunications-related
infrastructure throughout Germany.
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When we enter the switched voice telephony market, our ability to provide
viable services will depend in significant part upon our ability to secure and
maintain interconnection agreements with the incumbent operators and other
facilities-based providers in our target markets. We will need interconnection
to complete calls that originate on our network but terminate outside our
network or originate elsewhere and terminate on our network. The cost of
interconnecting will be a critical factor in determining whether services on
our network can be offered on a competitive basis.
Each of the countries in which we have operations has market-dominant
providers which are legally required to offer essential services such as
transmission, switching and operational interface to networks such as the one
we plan. Market-dominant operators of telecommunications facilities are
obligated to provide interconnection on a non-discriminatory basis and at cost-
related prices. If the terms and conditions of obligatory interconnection
cannot be agreed upon, the regulatory regimes of the countries in which we
operate provide for administrative proceedings which permit regulatory
authorities to set the conditions for interconnection.
In two decisions dated September 12 and October 2, 1997, the German Post
Ministry set the average interconnection price in Germany (the average fees
Deutsche Telekom may charge for origination and termination of voice services
from or into the network of other network operators) at 2.7 Pfennigs per minute
(for each delivery and receipt) until January 1, 2000. Deutsche Telekom has
filed suit seeking a higher average fee. Moreover, the German regulatory
authority (the "Regulatory Authority") has indicated to Deutsche Telekom that
it will be allowed to take additional costs into account when determining fees
subject to approval, if "atypical traffic" (still to be defined) occurs and
Deutsche Telekom provides evidence of the corresponding additional costs in
individual cases. However, Deutsche Telekom's first application for higher
prices because of such a typical traffic was denied by the Regulatory Authority
on the basis that Deutsche Telekom had not demonstrated the higher costs
resulting from such traffic. In order to assert these additional costs, we
understand that Deutsche Telekom has submitted an application to the Regulatory
Authority to supplement the interconnection fees currently in effect. We cannot
assure you that these additional costs will not be implemented until after the
Regulatory Authority has responded to this application.
Another potential consequence of the implementation of the concept of
"atypical traffic" is that Deutsche Telekom may offer interconnection on
modified conditions. We understand that Deutsche Telekom intends to force
competitors to install additional points of interconnection where traffic
originating from or terminating in an area defined by Deutsche Telekom exceeds
a specified volume. In addition, we understand that Deutsche Telekom intends to
seek certain other surcharges to interconnection rates. If approved by the
Regulatory Authority, these provisions would likely result in additional
infrastructure costs and higher interconnection rates for us.
Subscriber Line Charges
We rely upon Deutsche Telekom for leased lines so as to obtain direct access
to customers. Although the rates which Deutsche Telekom may charge for such
lines have been established by the Regulatory Authority and the ruling of the
Regulatory Authority purports to establish rates which will be in effect until
March 31, 2001, the ruling has been appealed to a court. Any possible increase
in these rates of the rental charge could impede our business development.
Internet Access Charges
T-Online, an ISP owned by Deutsche Telekom, has announced its intention to
charge Internet subscribers a flat rate that is significantly lower than the
rate charged by competitor ISPs. The District Court (Landgericht) Hamburg
enjoined T-Online from offering this rate because the telecommunications law
forbids market dominant providers from bundling services. However, this court
decision is not final and we cannot anticipate the final outcome of this issue.
If T-Online is permitted to charge the proposed rate, our ability to market
Internet access services might be adversely affected.
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Employees
At the end of June 1999, we had a total of approximately 324 employees
organized as follows: 88 in sales and marketing, 177 in technical and
operational personnel and 59 in administration. There are no collective
bargaining agreements in effect. We believe that relations with our employees
are good.
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 2,000 square
meters. Other leasehold properties for our regional offices are located in Ulm,
Neu-Ulm, Frankfurt, Dusseldorf, Berlin, Munich, Stuttgart, Hamburg, Vienna,
Trento, Rome, Milan, Florence, Padua, Verona, Zurich, Lausanne and an
administrative office is located in Washington, D.C. In addition, we lease
approximately 3,500 square meters for our planned facility in Frankfurt, 2,500
square meters for our planned facility in Hamburg and 600 square meters for our
new Trento Data Center, and are planning to lease additional space in
Dusseldorf, Munich, Vienna and Zurich.
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.
Legal Proceedings
In December 1998, we applied for and received a class 4 telecommunications
license from Germany's Regulierungsbehoerde fur Telekommunikation und Post. The
fee for this license was DM 3,000,000. The EU regulations set the maximum fee
that can be charged at 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 EC regulations in effect in 1998 and
prevailed in that action in the court of first instance. The decision is
subject to appeal and it is not possible to predict the ultimate outcome of our
action.
We are not involved in any other legal proceedings which we believe would, if
adversely determined, have a material adverse effect upon our business,
financial condition or results of operations.
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INFORMATION REGARDING SIGNIFICANT SUBSIDIARIES
The following table sets forth certain information pertaining to Cybernet's
significant subsidiaries.
<TABLE>
<CAPTION>
Country of %
Company Name in Full Registration Activity Ownership
- -------------------- ------------ -------- ---------
<S> <C> <C> <C>
Cybernet AG/(1)/ Germany Internet services 100
Flashnet S.p.A./(2)/ Italy Internet services 100
</TABLE>
- --------
(1) Net loss arising out of ordinary activities, after tax and for the
financial year ended December 31, 1998 amounted to DM 8,514,505
($4,649,647) and the net loss arising out of ordinary activities, after
tax, for the first quarter of 1999 amounted to DM 5,283,378 ($2,885,175).
No dividends have been received from Cybernet AG in the course of 1998 or
1999. Cybernet AG has no reserves as of December 31, 1998 as they are not
required for German corporations or under US GAAP. It has an issued share
capital of DM 3,200,000, all of which shares are credited as fully paid.
(2) Net loss after tax for the year ended December 31, 1998 amounted to Lit.
2,365,503 thousand ($1,304,796) and net loss after tax for the first
quarter of 1999 amounted to Lit. 833,163 thousand ($459,567). Flashnet had
an issued share capital of 2,182,857 shares as of March 31, 1999.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of our executive
officers and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Andreas Eder................. 39 Co-founder, Chairman of the Board of
Directors, President, Chief Executive
Officer, and Head of the Management Board of
Cybernet AG
Dr. Alessandro Giacalone..... 48 Director, Chief Operating Officer and Member
of the Management Board of Cybernet AG
Robert Eckert................ 38 Chief Financial Officer and Treasurer
Dr. Hubert Besner............ 36 Director and Member of the Management Board
of Cybernet AG
Timon Lutze.................. 42 Managing Director and Member of the
Management Board of Cybernet AG
Robert Fratarcangelo......... 61 Director and Secretary
G.W. Norman Wareham.......... 46 Director
R. Walter Franz.............. 37 Director of Network Operations of Cybernet AG
Tristan Libischer............ 30 Director, Co-Founder of Vianet and Member of
the Management Board of Vianet
Jurg Heim.................... 35 Co-Founder of Sunweb, Chief Executive Officer
of Subweb and Member of the Management Board
of Sunweb
Marco Samek.................. 27 Co-Founder of Sunweb, Chief Operational
Officer of Sunweb and Member of the
Management Board of Sunweb
Roberto Loro................. 33 Co-Founder of Eclipse, Director of Marketing
Division of Eclipse and Member of the
Management Board of Eclipse
Stefano Longano.............. 37 Co-Founder of Eclipse and Member of the
Management Board of Eclipse
Patrizia Loro................ 31 Manager of Eclipse and Member of the
Management Board of Eclipse
</TABLE>
Andreas Eder
Mr. Eder, a co-founder of Cybernet AG, has been Chairman, President, Chief
Executive Officer and Head of the Management Board of Cybernet AG since its
formation in December 1995 and has been Chairman of our Board of Directors,
President and Chief Executive Officer since we acquired Cybernet AG in 1997.
Before founding Cybernet AG, Mr. Eder held management positions with The Boston
Consulting Group from April 1991 to October 1995 and Siemens-Nixdorf
Information Systems from April 1986 to March 1991. Mr. Eder holds a Master
Degree in Business Administration from the University of Munich.
Dr. Alessandro Giacalone
Dr. Giacalone has been our Chief Operating Officer and member of the
Management Board of Cybernet AG since October 1997 and a Director since
February 1999. From September 1994 to May 1997, Dr. Giacalone was Managing
Director of the European Computer-Industry Research Centre ("ECRC") in Munich
and, from 1990 to September 1994, he was Research Group Leader at the ECRC. At
the ECRC, he built a commercial Internet service enterprise which was the
second such enterprise in Germany. This project
91
<PAGE>
was completed by the end of 1996. Between 1984 and 1990, he was an Assistant
Professor of Computer Science at the State University of New York. Dr.
Giacalone graduated in Computer Science from the University of Pisa and holds
Masters and Doctorate degrees in Computer Science from Brown University.
Robert Eckert
Mr. Eckert joined the Company as Chief Financial Officer and Treasurer in May
1999. From September 1998 to May 1999, Mr. Eckert was the Chief Financial
Officer of NetSource ASA, a pan-European reseller of telecommunications
services. From July 1997 to August 1998, Mr. Eckert was the Director of
International Business Development and from 1995 to July 1997, he was the
Finance Director at Swisscom International. From 1987 to 1994, Mr. Eckert was
with the General Electric Company (USA) where he held several finance positions
in various countries and business groups. He holds a BA in International
Business and Marketing from Northeastern University in the USA and an MBA from
INSEAD in France.
Dr. Hubert Besner
Dr. Besner is one of our Directors and a member of the Management Board of
Cybernet AG and has served in these capacities since February 1996. From April
1994 to the present, he has been a partner in the law firm of Besner Kreifels
Weber in Munich. From January 1992 to March 1994, he was the head of the legal
department of Schneider, a German real estate development company. He is
currently a Director of Marine Shuttle Operations, a member of the Supervisory
Board of Schuller Industsrieentsorgung, Typhoon Networks and IPO Beteiligungen,
and is the head of the Supervisory Board of PIPECAD Integrierte Softwaresyteme.
Dr. Besner received his First State Exam in law from Ludwig-Maximilians-
Universitat in 1986 and his Doctorate Degree magna cum laude from Ludwig-
Maximilians-Universitat in 1988.
Timon Lutze
Since March 1999, Mr. Lutze has served as a member of the Management Board of
Cybernet AG and as Managing Director, responsible for the areas of marketing,
sales and production. From November 1998 to March 1999, Mr. Lutze was sales
director of Cybernet AG. From October 1997 to March 1998, Mr. Lutze was head of
the operational division of Telekommunication Multimedia Consult. From April
1996 to September 1997, Mr. Lutze was the sales director of Alcatel Mobile
Communications Division. From May 1993 to April 1996, Mr. Lutze held various
positions with Alcatel in Germany. Mr. Lutze graduated from the German Armed
Forces University with degrees in Aerospace Engineering and Data Processing.
Robert Fratarcangelo
Since May 1999, Mr. Fratarcangelo has been our Secretary, and he has been one
of our Directors since September 1997. Since September 1996, he has been the
President and Chief Executive Officer of Criminal Investigative Technologies,
Inc. From 1993 to 1996, Mr. Fratarcangelo was a District Manager at EMC/2/ in
Massachusetts. From 1988 to 1993, Mr. Fratarcangelo was Vice President, Federal
Sales at Teradata and Digital Communications Associates. Previously, Mr.
Fratarcangelo held various positions at IBM. Mr. Fratarcangelo has a Bachelors
Degree in Political Science from the State University of New York.
G.W. Norman Wareham
Mr. Wareham has been one of our Directors since May 1997. Mr. Wareham is a
director of ZMAX Corporation and has served in this capacity since September
1996. He has been the President of Wareham
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<PAGE>
Management Ltd. since May 1996. Mr. Wareham is currently a director and officer
of Aquaplan, British Brasses, Solar Energy, Viper Resources and WattMonitor and
has served in these capacities since May 1997, December 1998, December, 1997,
November 1998 and December 1998, respectively. Since June 1998 and February
1997, respectively, Mr. Wareham has been a director of two Canadian public
companies, Anthian Resources and Orko Gold. From June 1995 to January 1996, Mr.
Wareham was an accountant with the certified general accounting firm of Wanzel,
Sigmund, & Overes. From April 1993 to February 1995, Mr. Wareham served as
President and Chief Executive Officer of Transatlantic Financial, a private
investment banking company. From August 1986 to March 1993, Mr. Wareham was the
proprietor of Wareham & Company, providing accounting and management consulting
services.
R. Walter Franz
Mr. Franz is our Director of Network Operations and has served in this
capacity since joining us in January 1999. From January 1997 to January 1999,
Mr. Franz was Director of Operations in Germany at MCI/Worldcom. From January
1995 to January 1997, Mr. Franz was Manager of Operations at MFS
Telecommunications. From June 1989 to December 1994, Mr. Franz worked for
Motorola where he was responsible for implementation of the infrastructure
necessary to support Motorola's European computer network.
Tristan Libischer
Mr. Libischer has been one of our Directors since February 1999. He is co-
founder of Vianet and has been a Managing Director of Vianet since September
1994. From February 1992 to August 1994, Mr. Libischer held various positions
with BARK. From November 1990 to January 1992, Mr. Libischer was a senior
consultant and sales engineer with 3C Group.
Jurg Heim
Mr. Heim, a co-founder and member of the Management Board of Sunweb, has
served as Chief Executive Officer of Sunweb since its formation in March 1998.
From October 1997 to March 1998, Mr. Heim was a Systems Engineer of data and
intellectual property services at Netcom Services. Mr. Heim was head of Systems
Administration at Telepax Communications from February 1988 to March 1994. Mr.
Heim holds an Electronic Installation degree in Informatik Telephonie.
Marco Samek
Mr. Samek, a co-founder of Sunweb, has served as Chief Operational Officer
and as a member of the Management Board of Sunweb since its formation in March
1998. Since December 1997, Mr. Samek has also been a principal of Framenet EDP.
He was a Systems Engineer of Internet Services at Newtelco from August 1997 to
April 1998. From January 1996 to April 1997, Mr. Samek was Chief Systems
Engineer in the multimedia company Decatron. Mr. Samek has a technical degree
in Communications from Technikum Winterhur College.
Roberto Loro
Mr. Loro, a co-founder of Eclipse, has served as Director of the Marketing
Division of Eclipse and member of the Management Board of Eclipse since April
1998 and before that, he was Director of Project Development there since
January 1992. Previously, he performed various software, IT and mathematics
consulting assignments for a variety of public and private organizations. Mr.
Loro holds a Mathematics degree from the University of Trento.
93
<PAGE>
Stefano Longano
Mr. Longano is a co-founder of Eclipse and has been a member of the
Management Board of Eclipse since April 1998. From January 1996 to March 1998,
Mr. Longano was technical director of Eclipse. From January 1991 to December
1995, he was a senior scientist and project manager for European projects at
the Laboratory of Information and Communication Technologies of the University
of Trento. He holds a Masters Degree in Physics from the University of Trento.
Patrizia Loro
Ms. Loro has been a member of the Management Board of Eclipse since April
1998 and a manager of Eclipse since January 1995. From March 1993 to December
1997, Ms. Loro was Managing Director and a major shareholder of Centro Servizi
Agiendali Sas. Since 1990, Ms. Loro has held various positions in accounting in
several companies. She attended economics courses at the University of Trento
and Italian Tax Code classes in Milan.
Except for a sibling relationship between Roberto and Patrizia Loro, no
family relationship exists between any director or executive officer and any
other director or executive officer.
Board Composition
We currently have six directors. In accordance with the terms of our
Certificate of Incorporation, the Board of Directors will be divided into three
classes: Class A, whose term will expire at the annual meeting of stockholders
to be held in 2002; Class B, whose term will expire at the annual meeting of
stockholders to be held in 2000; and Class C, whose term will expire at the
annual meeting of stockholders to be held in 2001. The Class A directors are
Dr. Besner and Mr. Fratarcangelo, the Class B directors are Dr. Giacalone and
Mr. Wareham, and the Class C directors are Messrs. Eder and Libischer. At each
annual meeting of stockholders after the initial classification, the successors
to directors whose terms will then expire will be elected to serve from the
time of election and qualification until the third annual meeting following
election. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. Directors may
be removed for cause by the affirmative vote of the holders of a majority of
all outstanding voting shares of Cybernet entitled to vote generally, voting
together as a single class.
Board Committees
The Board of Directors has three committees: an Executive Committee, an Audit
Committee and a Compensation Committee. The Executive Committee consists of Mr.
Eder, Dr. Besner and Dr. Giacalone. The Audit Committee consists of Messrs.
Fratarcangelo and Wareham. The Audit Committee reviews our accounting
processes, financial controls and reporting systems, as well as our selection
of independent auditors and the scope of the audits to be conducted.
The Compensation Committee consists of Dr. Besner, Mr. Fratarcangelo, and Mr.
Wareham. It reviews executive compensation and organization structure. The
Compensation Committee also administers our Stock Option Plan. Prior to the
creation of the Compensation Committee in November 1998, all decisions
concerning salaries, incentives and other forms of compensation of our
directors, officers and other employees were made by the whole Board of
Directors.
Director Compensation
Directors, who are not also employees ("Outside Directors"), receive $15,000
annually (the "Annual Director Fee") and are reimbursed for out-of-pocket
expenses incurred in connection with their service on the Board. Each Outside
Director may elect to receive his Annual Director Fee in cash, stock options or
a combination thereof. The value of the stock options is determined pursuant to
the Black-Scholes method and the options are fully vested at the date of grant.
Employment Contracts
Our executive officers are appointed by the Board of Directors and serve
until their successors are elected or appointed.
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<PAGE>
We have entered into employment agreements with each of the following
officers and directors on the following material terms.
Andreas Eder. On March 1, 1999, we entered into an employment agreement with
Mr. Eder to serve as President and Chief Executive Officer. The agreement
provides for a three-year term and an annual base salary of approximately
$125,716 per year. It also permits Mr. Eder to earn an annual bonus of up to
approximately $41,906 if certain performance standards established by the
Compensation Committee are achieved. We may terminate the agreement if Mr. Eder
should suffer a "disability" or for "cause."
Upon Mr. Eder's death, we are obligated to pay to his estate an amount equal
to his base salary for the period ended 12 months after his death. If Mr. Eder
resigns or we terminate his employment as a result of a "disability" or for
"cause," we are obligated to pay his base salary through the date of
termination.
Under the agreement, "disability" is defined as: (a) any mental or physical
disability which the Board of Directors deems in good faith would preclude Mr.
Eder from performing his duties; or (b) a mental or physical disability which
lasts for a period of 60 consecutive days or for 90 days in any six-month
period and which the Board of Directors elects to treat as permanent in nature.
The agreement defines "cause" as any material breach of its terms by Mr. Eder
or the commission of a felony or a crime involving moral turpitude.
Alessandro Giacalone. On March 1, 1999, we entered into an employment
agreement with Dr. Giacalone to serve as Chief Operating Officer on the same
terms as described above with respect to Mr. Eder.
Tristan Libischer. On December 28, 1998, Vianet entered into an employment
agreement with Mr. Libischer to serve as a member of the Management Board of
Vianet. The agreement is for a five-year term beginning January 1, 1999,
provides for an annual base salary of approximately $100,573 and permits
Mr. Libischer to earn an annual bonus of approximately $33,524 if certain
performance standards established by the Management Board of Vianet are
achieved.
Vianet may terminate the agreement for "good cause." "Good cause" is defined
as a gross breach of duty, the inability to properly conduct the affairs of
Vianet or a vote of no confidence at an annual meeting of Vianet.
Mr. Libischer is not entitled to severance pay if his employment is
terminated for good cause or if he resigns prematurely without the permission
of the Management Board of Vianet. If Mr. Libischer is unable to perform his
duties due to illness or accident, Vianet is required to pay his full base
salary for a maximum of six months and 49% of his base salary for another three
months. If Mr. Libischer leaves Vianet in the middle of a fiscal year, any
bonus earned will be paid on a pro-rata basis.
Robert Eckert. Mr. Eckert entered into an employment agreement with the
Company to serve as Chief Financial Officer which will become effective when
Mr. Eckert receives his working permit from the German governmental
authorities. The agreement is for a three-year term and provides for a base
salary of approximately $114,000. The agreement also provides for a bonus of up
to approximately $46,000 if certain performance standards established by the
Compensation Committee are achieved. Mr. Eckert will also receive an option to
purchase 100,000 shares of Cybernet's common stock pursuant to Cybernet's
Incentive Plan (as defined). In the event Mr. Eckert is unable to work due to
illness or other reasons, the Company is obligated to pay Mr. Eckert his base
salary for six months. In the event of Mr. Eckert's death, the Company is
obligated to pay Mr. Eckert's heirs his base salary for six months.
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<PAGE>
Timon Lutze. On March 15, 1999, Cybernet AG entered into an employment
agreement with Mr. Lutze to serve as a member of the Management Board of
Cybernet AG. The agreement provides for an annual base salary of approximately
$111,748 and permits Mr. Lutze to earn an annual bonus of up to approximately
$39,112 if certain performance standards established by the Management Board of
Cybernet AG are achieved. Mr. Lutze also received an option to purchase 30,000
shares of Cybernet common stock at an exercise price of $31.41 per share. The
options vest over a three-year period on each anniversary of the grant date in
increments of approximately one-third. Otherwise the terms are the same as
those described above with respect to Mr. Moosmann.
Jurg Heim. Sunweb has entered into an employment agreement with Mr. Heim for
a term expiring on March 31, 2001. The agreement provides for a base
compensation of approximately $98,115, in addition to certain management
bonuses and an option to purchase 15,000 shares of Cybernet's common stock if
Sunweb meets specified performance goals for 1999.
Marco Samek. Sunweb has entered into an employment agreement with Mr. Samek
on the same terms as described above for Mr. Heim.
Summary Compensation Table
Our compensation program for executive management includes base salaries,
annual performance-based incentive bonus plans and stock option plans. The
compensation of each executive officer was established by the Board of
Directors acting upon the recommendations of the Compensation Committee.
The following table sets forth the annual long-term and other compensation
for our Chief Executive Officer and our other two most highly compensated
executive officers during the last fiscal year, as well as the total annual
compensation paid to each individual for the three previous fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
--------------- ------------
Securities
Underlying All Other
Fiscal Options Compensation
Name and Principal Position Year Salary ($)(/1/) SARs (#) ($)
- --------------------------- ------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Andreas Eder............................................. 1998 $96,135 100,000(/3/) N/A
Chairman of the Board, President, Chief Executive 1997 65,066(/2/) 0 N/A
Officer, and Head of the Management Board of Cybernet AG 1996 N/A(/2/) N/A(/2/) N/A
Alessandro Giacalone..................................... 1998 125,716 100,000(/3/) N/A
Director, Chief Operating Officer, and Member of 1997 31,429(/2/) 0 N/A
Management Board of Cybernet AG 1996 N/A(/2/) N/A(/2/) N/A
Rudolf Strobl............................................ 1998 96,163 0 $251,433(/4/)
Former Member of Management 1997 70,616(/2/) 0 N/A
Board of Cybernet AG 1996 N/A(/2/) N/A(/2/) N/A
</TABLE>
96
<PAGE>
- --------
(1) Each of the persons listed has or had an employment contract with us
calling for the payment of an annual bonus if certain performance standards
are achieved. No bonus was paid in the years listed.
(2) Messrs. Eder and Strobl became executive officers of Cybernet in connection
with our acquisition of Cybernet AG in September 1997. As a result, the
information presented for fiscal 1997 represents payments made from the
time of such acquisition through December 31, 1997 and no information is
presented for fiscal 1996. Dr. Giacalone joined the Company in October
1997.
(3) Represents shares of Cybernet's common stock subject to an option granted
to the named executive on December 27, 1998.
(4) The amount indicated was paid to Mr. Strobl in December 1998 as severance
pay in connection with the termination of his employment agreement. Mr.
Strobl's employment terminated on December 31, 1998.
Option/SAR Grants in Last Fiscal Year
The following table provides information on options to purchase Cybernet's
common stock that were granted to two of the above named executives during
fiscal 1998. Mr. Strobl received no option grants in fiscal 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
------------------------- ---------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------------ ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Andreas Eder........... 100,000 14.6% $32.04 12/27/08 $2,015,000 $5,016,000
Chairman of the Board,
President, Chief
Executive Officer, and
Head of the Management
Board of Cybernet AG
Alessandro Giacalone... 100,000 14.6% 32.04 12/27/08 2,015,000 5,106,000
Director, Chief
Operating Officer, and
Member of the
Management Board of
Cybernet AG
</TABLE>
Indemnification of Directors and Officers
Our Certificate of Incorporation limits the liability of our directors and
executive officers to the maximum extent permitted by Delaware law. Delaware
law provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for (i) breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments
of dividends or unlawful stock repurchases or redemptions, or (iv) any
transaction from which the director derived an improper personal benefit. Such
limitation of liability does not apply to liability arising under the federal
or state securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
We have also secured insurance on behalf of each officer, director, employee
or other agent for any liability arising out of claims under applicable
securities laws against such persons and us, and on behalf of directors and
officers with respect to other claims.
At present, there is no pending litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
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<PAGE>
Stock Incentive Plan
We maintain the Cybernet Internet Services International, Inc. 1998 Stock
Incentive Plan (the "Incentive Plan"). The Board of Directors has reserved
2,000,000 shares of Cybernet's common stock for issuance pursuant to awards
that may be made under the Incentive Plan, subject to adjustment as provided
therein. The number of shares of common stock associated with any forfeited
stock incentive are added back to the number of shares that can be issued under
the Incentive Plan. No participant may be granted during any one year period
rights to shares of common stock under options and stock appreciation rights
which, in the aggregate, exceed 100,000 shares of common stock. On November 19,
1998 and December 27, 1998, the Compensation Committee granted options to 97
employees to purchase a total of 685,000 shares of common stock in varying
amounts.
The Incentive Plan allows for the grant of incentive stock options, non-
qualified stock options, stock appreciation rights, stock awards, dividend
equivalent rights, performance units and phantom shares. The exercise price of
an incentive stock option may not be less than the fair market value of the
common stock on the date of the grant (or less than 110% of the fair market
value if the participant controls more than 10% of the voting power of Cybernet
or a subsidiary thereof). Non-qualified stock options may be made exercisable
at a price equal to, less than or more than the fair market value of the common
stock on the date that the option is awarded. The term of an incentive stock
option may not exceed ten years from the date of grant. However, any incentive
stock option granted to a participant who controls more than 10% of the voting
power of Cybernet or a subsidiary thereof will not be exercisable after the
expiration of five years following the date the option is granted.
RELATED PARTY TRANSACTIONS
Dr. Besner, one of our Directors, is a partner with the law firm of Besner
Kreifels Weber, which represents us and to which we paid fees of approximately
$98,303 during fiscal 1998.
In November 1998, Mr. Timm, one of our principal stockholders and a former
Director who resigned on December 2, 1998, advanced an interest free loan to us
for approximately $1,396,849. We repaid the loan in December 1998.
In December 1998, we paid $2,916,000 in underwriting fees to an investment
bank that is 40% owned by a company of which Mr. Timm is Head of the Managing
Board, President, Chief Executive Officer and a principal stockholder. These
underwriting fees were paid in connection with a best efforts all or nothing
public offering of our common stock.
We provide Internet connectivity services to Cybermind Interactive Europe
("Cybermind"), a principal stockholder of Cybernet, pursuant to a standard
service contract. In 1998, Cybermind paid us approximately $68,200 for such
services. Mr. Timm is Chief Executive Officer and Head of the Managing Board,
as well as the principal stockholder, of Cybermind.
98
<PAGE>
STOCK OWNERSHIP OF PRINCIPAL
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 30, 1999,
regarding beneficial ownership of Cybernet's common stock, Series A Preferred
Stock and Series B Voting Preferred Stock by (i) each stockholder known by us
to be the beneficial owner of more than five percent of the outstanding shares
of common stock or Series B Voting Preferred Stock, as the case may be; (ii)
each of our directors with respect to the equity securities held by such
director; (iii) each of our executive officers named in the Summary
Compensation Table with respect to the equity securities held by such executive
officer; and (iv) all of our current executive officers and directors as a
group with respect to the equity securities held by such executive officers and
directors. Stock ownership information has been furnished to us by such
beneficial owners or is based upon filings made by such owners with the
Securities and Exchange Commission. As of September 30, 1999, there were
20,988,867 shares of Cybernet common stock, 923,440 shares of Series A
Preferred Stock and 3,870,000 shares of Series B Voting Preferred Stock issued
and outstanding.
<TABLE>
<CAPTION>
Name Shares Beneficially Owned
- ---- ---------------------------------------
Series A Series B
Non-Voting Voting
Common Preferred Preferred
Executive Officers and Directors Stock Stock Stock
- -------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
Andreas 1,568,081(/1/) 133,313(/1/) 0
Eder.....
Stefan-
George-
Ring 19
81929
Munich,
Germany
<CAPTION>
Approximate
Name Percentage of Class
- ---- -----------------------------------------------------------
Percentage of Percentage of
Series A Series B
Percentage of Non-Voting Voting
Common Preferred Preferred Voting
Executive Officers and Directors Stock Stock Stock Distribution(/7/)
- -------------------------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Andreas 7.5% 14.4% * 6.3%
Eder.....
Stefan-
George-
Ring 19
81929
Munich,
Germany
Alessandro 318,600(/2/) 27,000 0
Giacalone..
Stefan-
George-
Ring 19
81929
Munich,
Germany
Alessandro 1.5% 2.9% * 1.3%
Giacalone..
Stefan-
George-
Ring 19
81929
Munich,
Germany
Tristan 150,000 0 0
Libischer..
Mariannengasse
14
1090
Vienna,
Austria
Tristan * * * *
Libischer..
Mariannengasse
14
1090
Vienna,
Austria
Hubert 1,261(/3/) 0 0
Besner...
Widenmayerstrasse
41
80538
Munich,
Germany
Hubert * * * *
Besner...
Widenmayerstrasse
41
80538
Munich,
Germany
G.W. 0 0 0
Norman
Wareham..
1177 West
Hastings
Street
Suite 1818
Vancouver,
B.C.,
Canada
V6E 2K3
G.W. * * * *
Norman
Wareham..
1177 West
Hastings
Street
Suite 1818
Vancouver,
B.C.,
Canada
V6E 2K3
Robert 0 0 0
Fratarcangelo..
10842 Oak
Crest
Fairfax,
Virginia
22030
Robert * * * *
Fratarcangelo..
10842 Oak
Crest
Fairfax,
Virginia
22030
All
executive
officers
and
directors
as a
group (10
persons).. 2,197,242 173,813 0
All
executive
officers
and
directors
as a
group (10
persons).. 10.5% 19.4% * 8.8%
<CAPTION>
Principal Stockholders Other
Than Executive Officers
and Directors
<S> <C> <C> <C>
Rudolf 474,117 40,179 0
Strobl...
Gleiwitzerstrasse
15
81929
Munich,
Germany
<CAPTION>
Principal Stockholders Other
Than Executive Officers
and Directors
<S> <C> <C> <C> <C>
Rudolf 2.2% 4.4% * 1.9%
Strobl...
Gleiwitzerstrasse
15
81929
Munich,
Germany
Holger 2,279,571(/4/) 536,625(/5/) 3,870,000(/6/)
Timm.....
Trabner
Strasse
12
14193
Berlin,
Germany
Holger 10.9% 58.1% 100.0% 24.7%(/8/)
Timm.....
Trabner
Strasse
12
14193
Berlin,
Germany
Cybermind 1,257,396 450,000 3,870,000
Interactive
Europe...
Am
Borsigturm
48
13507
Berlin,
Germany
Cybermind 6.0% 48.7% 100.0% 20.6%
Interactive
Europe...
Am
Borsigturm
48
13507
Berlin,
Germany
</TABLE>
- --------
*Indicates less than 1% beneficial ownership
(1) Includes 328,027 shares of common stock and 28,223 shares of Series A Non-
voting Preferred Stock held by Mr. Eder's spouse. She has sole investment
and sole voting power over all shares held by her, and Mr. Eder disclaims
beneficial ownership of any of the shares held by her. Includes 169,200
shares of common stock and 10,800 shares of Series A Preferred Stock
subject to an agreement
99
<PAGE>
between Andreas Eder and Dave Morton, an employee of the Company, by which
Mr. Morton has the option to acquire, (a) 25% of the total number of shares
starting on January 1, 1999, (b) 25% of the total number of shares starting
on January 1, 2000 and ending June 30, 2000, and (c) 50% of the total number
of shares starting on January 1, 2001, and ending June 30, 2001 and (B)
98,700 shares of common stock and 6,300 shares of Series A Preferred Stock
subject to an agreement between Andreas Eder and Todd Ferguson, an employee
of the Company or its subsidiary, by which Mr. Ferguson has the option to
acquire such shares at the same price and under terms as for Mr. Morton.
Does not include options to purchase 100,000 shares of common stock under
the Company's Incentive Plan, which begin to become exercisable on December
28, 1999.
(2) Does not include options to purchase 100,000 shares of common stock under
the Company's Incentive Plan which begin to become exercisable on December
28, 1999.
(3) Includes 1,261 shares of common stock held by Dr. Besner's spouse who has
sole voting and investment power with respect to such shares. Dr. Besner
disclaims beneficial ownership of any of the shares held by her.
(4) Mr. Timm can be deemed to control Cybermind as a result of his position as
Chief Executive Officer and Head of the Managing Board and principal
shareholder. Includes 1,290,000 shares of common stock held by Cybermind
after the conversion of the Series B Preferred. Does not include an
aggregate of 637,200 shares of common stock sold by Mr. Timm to Alessandro
Giacalone, Christian Moosmann, Frank Lutze and Hans Bergbreiter pursuant
to stock purchase agreements dated April 8, 1997 (the "April 8 Stock
Purchase Agreements"). Also, does not include an aggregate of 54,000
shares of Series A Preferred Stock sold by Mr. Timm to the same
individuals pursuant to the April 8 Stock Purchase Agreements. Each of the
April 8 Stock Purchase Agreements involved an employee purchaser and
provides that, subject to certain conditions, the securities sold shall
revert to Mr. Timm if the purchaser's employment terminates for any reason
except termination without cause by us or one of our subsidiaries, or if
we or one of our subsidiaries breaches our employment agreement with such
buyer. If such shares were included as beneficially owned by Mr. Timm for
purposes of this chart, he would be deemed to hold 13.3% of the common
stock of Cybernet (27.4% of Voting Distribution).
(5) Includes 450,000 shares of Series A Non-Voting Preferred Stock held by Mr.
Timm indirectly through Cybermind. For an explanation of Mr. Timm's
relationship to Cybermind, see Footnote 4 above.
(6) Reflects shares of Series B Voting Preferred Stock held by Mr. Timm
indirectly through Cybermind. For an explanation of Mr. Timm's
relationship to Cybermind, see Footnote 4 above.
(7) For purposes of this column, the percentages were calculated by adding the
number of shares of common stock outstanding to 100% of the Series B
Voting Preferred. It does not take into account the Series A Non-Voting
Preferred Stock that is not presently convertible or options granted to
directors, employees or management that have not been exercised.
(8) Assuming conversion of the remaining Series A Non-Voting Preferred Stock,
Mr. Timm would control approximately 27% of the voting securities of
Cybernet.
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DESCRIPTION OF THE EXCHANGE NOTES
General
The Outstanding Notes were issued under the Senior Notes Indenture dated July
8, 1999 between the Company and The Bank of New York, as trustee (the
"Trustee"). The Exchange Notes will be issued under the Senior Notes Indenture,
which will be qualified under the United States Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), upon the effectiveness of the registration
statement of which this prospectus is a part. The form and terms of the
Exchange Notes are the same in all material respects as the form and terms of
the Outstanding Notes, except that the Exchange Notes will have been registered
under the Securities Act and, therefore, will not bear legends restricting
transfer thereof other than those relating to the offer and sale of Exchange
Notes in the United Kingdom. The Exchange Notes will evidence the same debt as
the Outstanding Notes and will be treated as a single class under the Senior
Notes Indenture with any Outstanding Notes that remain outstanding. The
Outstanding Notes and Exchange Notes are herein collectively referred to as the
"Notes."
The following summary of certain provisions of the Senior Notes Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Senior Notes Indenture, including the definitions therein of certain
terms used below. The definitions of certain terms used in the following
summary are set forth below under "--Certain Definitions." All references
herein to principal of, premium, if any, interest, and/or Additional Amounts
(as defined on page 119), if any, shall be deemed to include liquidated
damages, if any. For purposes of this "Description of the Exchange Notes," the
term "Company" is used to refer specifically to Cybernet Internet Services
International, Inc.
The Company expects to make an application to list the Exchange Notes on the
Luxembourg Stock Exchange after the Separation Date. If and so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange, the Company will
maintain a special agent or, as the case may be, a paying and transfer agent in
Luxembourg. See "Listing and General Information."
Ranking
The Notes will be general unsecured (except to the extent described under "--
Collateral Account") obligations of the Company and will rank senior in right
of payment to all future Indebtedness of the Company that is, by its terms or
by the terms of the agreement or instrument governing such Indebtedness,
expressly subordinated in right of payment to the Notes and pari passu in right
of payment with all existing and future unsecured liabilities of the Company
that are not so subordinated.
The Company is a holding company with limited assets and operates its
business through Subsidiaries. Any right of the Company and its creditors,
including holders of the Notes, to participate in the assets of any of the
Company's Subsidiaries upon any liquidation or administration of any such
Subsidiary will be subject to the prior claims of the creditors of such
Subsidiary. The claims of creditors of the Company, including holders of the
Notes, will be effectively subordinated to all existing and future third party
indebtedness and liabilities, including trade payables, of the Company's
Subsidiaries. At June 30, 1999, the Company's Subsidiaries had total
liabilities of $16,200,635 million reflected on the Company's balance sheet.
The Company and its Subsidiaries may incur other debt in the future, including
secured debt.
The Notes will not be entitled to any security (except to the extent
described under "--Collateral Account") and will not be entitled to the benefit
of any guarantees, except under the circumstances described under "--Certain
Covenants--Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries."
Principal, Maturity and Interest
The Notes will be limited in aggregate principal amount to $350 million and
will mature on July 1, 2009. The Notes will bear interest at the rate of 14.0%
per annum payable semi-annually in arrears on each July 1 and
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January 1 (each, an "Interest Payment Date"), commencing on January 1, 2000 to
the Person in whose name each Note (or any predecessor Note) is registered at
the close of business on the preceding June 15 or December 15, as the case may
be. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company may issue additional Notes ("Additional Notes") from time
to time after the Unit Offering, subject to the provisions of the Senior Notes
Indenture described below under "--Certain Covenants" and applicable law. The
Notes offered hereby and any Additional Notes subsequently issued under the
Senior Notes Indenture would be treated as a single class for all purposes
under the Senior Notes Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Principal of, and premium, if
any, interest, and Additional Amounts, if any, on the Notes will be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest and
Additional Amounts, if any, may be made by check mailed to the holders of the
Notes at their respective addresses set forth in the register of holders of
Notes; provided that all payments with respect to Notes the holders of which
have given wire transfer instructions to the Company will be required to be
made by wire transfer of immediately available funds to the accounts specified
by the holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes are currently represented by a global
Note in registered, global form without interest coupons. The global Note shall
be exchanged by the Company (with authentication by the Trustee) for one or
more Definitive Notes (the "Definitive Notes"), if (a) DTC (i) has notified the
Company that it is unwilling or unable to continue as, or ceases to be, a
clearing agency registered under the Exchange Act, and (ii) a successor to DTC
registered as a clearing agency under the Exchange Act is not able to be
appointed by the Company within 90 days of such notification, or (b) at any
time at the option of the Company. If an Event of Default occurs and is
continuing, the Company shall, at the request of the holder thereof, exchange
all or part of a global Note for one or more Definitive Notes (with
authentication by the Trustee); provided, however, that the principal amount of
such Definitive Notes and such global Note after such exchange shall be $1,000
or integral multiples thereof. The Notes will be issued in minimum
denominations of $1,000 principal amount and integral multiples thereof. If the
Exchange Notes are listed on the Luxembourg Stock Exchange, the Company will
appoint Kredietbank S.A. Luxembourgeoise, or such other Person located in
Luxembourg as an additional paying and transfer agent. Upon the issuance of
Definitive Notes, holders will be able to receive principal of, and interest
and Additional Amounts, if any, on the Notes and will be able to transfer
Definitive Notes at the Luxembourg office of such paying and transfer agent,
subject to the right of the Company to mail payments in accordance with the
terms of the Senior Notes Indenture.
Collateral Account
Concurrently with the consummation of the Unit Offering, pursuant to a
collateral agreement relating to the Notes (the "Collateral Agreement"), the
Company purchased, pledged and transferred to the Collateral Agent, for the
benefit of the holders of the Notes, U.S. Government Securities (the "Pledged
Securities") in such amounts as will be sufficient upon scheduled interest
payments of such securities to provide for the payment in full of the first six
scheduled interest payments on the Notes (excluding, in each case, any
Additional Amounts). The Company used approximately $57 million of the net
proceeds of the Unit Offering to acquire the U.S. Government Securities. The
Pledged Securities were pledged to the Collateral Agent for the benefit of the
holders of the Notes and deposited in the Collateral Account held by the
Collateral Agent for the benefit of the Trustee and the holders of the Notes in
accordance with the Collateral Agreement. The Collateral Agreement provides,
among other things, that funds may be disbursed from the Collateral Account for
interest payments on the Notes. The Collateral Agent has been instructed to
cause any uninvested funds in the Collateral Account to be invested, pending
disbursement, in cash equivalents (as provided in the Collateral Agreement).
Interest earned on the Pledged Securities and any such cash equivalents will be
added to the Collateral Account.
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Under the Collateral Agreement, the Company has granted to the Trustee, for
the benefit of the holders of the Notes, a first priority and exclusive
security interest in the Collateral. The Collateral Agreement provides that the
Trustee may foreclose on the Collateral upon acceleration of the maturity of
the relevant series of Notes. Under the terms of the Senior Notes Indenture,
the proceeds of the Collateral will be applied, first, to amounts owing to the
Trustee in respect of fees and expenses of the Trustee, and second, to amounts
owing on the Notes as provided in the Senior Notes Indenture. The ability of
holders to realize upon the Collateral may be subject to certain bankruptcy law
limitations in the event of the bankruptcy of the Company.
Upon payment in full of the first six scheduled interest payments (including
any Additional Amounts), if no Default has occurred and is continuing, the
Collateral will be released to the Company.
Mandatory Redemption
The Company will not be required to make mandatory redemptions or sinking
fund payments prior to maturity of the Notes.
Optional Redemption
Except as described below and in the following paragraph or under "--
Redemption for Taxation Reasons," the Notes will not be redeemable at the
Company's option prior to July 1, 2004. From and after July 1, 2004, the Notes
will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' prior notice published in a
leading newspaper having a general circulation in New York (which is expected
to be The Wall Street Journal) and in Frankfurt (which is expected to be the
Frankfurter Allgemeine Zeitung) (and if and so long as the Exchange Notes are
listed on the Luxembourg Stock Exchange and the rules of such Stock Exchange
shall so require, a newspaper having a general circulation in Luxembourg (which
is expected to be the Luxemburger Wort)) or, in the case of Definitive Notes,
mailed by first-class mail to the registered address of each holder of the
Notes (and, if and so long as the Exchange Notes are listed on the Luxembourg
Stock Exchange and the rules of such Stock Exchange shall so require, published
in a newspaper having a general circulation in Luxembourg (which is expected to
be the Luxemburger Wort)), at the redemption prices (expressed as a percentage
of principal amount) set forth below, plus accrued and unpaid interest and
Additional Amounts, if any, to the applicable redemption date (and, in the case
of Definitive Notes, subject to the right of holders of record on the relevant
record date to receive interest and Additional Amounts, if any, due on the
relevant interest payment date in respect thereof), if redeemed during the
twelve-month period beginning on July 1 of each of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2004..................................................... 110.000%
2005..................................................... 106.667%
2006..................................................... 103.333%
2007 and thereafter...................................... 100.000%
</TABLE>
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal securities exchange, if any, on which the Notes are listed or, if
such Notes are not so listed or such exchange prescribes no method of
selection, on a pro rata basis, by lot or by such other method as the Trustee
in its sole discretion shall deem to be fair and appropriate, although no Note
of $1,000 in original principal amount or less shall be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption relating to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued and delivered to the Depositary, or, in the case of
Definitive Notes, issued in the name of the holder thereof in each case upon
cancellation of the original Note. On
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and after the redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption.
Redemption for Taxation Reasons
The Notes may be redeemed, at the option of the Company, in whole but not in
part, at any time upon giving not less than 30 nor more than 60 days' notice to
the holders (which notice shall be irrevocable), at a redemption price equal to
the principal amount thereof, together with accrued and unpaid interest to the
date fixed by the Company for redemption (a "Tax Redemption Date") and all
Additional Amounts (see "--Withholding Taxes"), if any, then due and which will
become due on the Tax Redemption Date as a result of the redemption or
otherwise, if the Company determines that, as a result of (i) any change in, or
amendment to, the laws or treaties (or any regulations or rulings promulgated
thereunder) of the Federal Republic of Germany (or any political subdivision or
taxing authority thereof) affecting taxation which becomes effective on or
after the Issue Date, or (ii) any change in or new or different position
regarding the application, administration or interpretation of such laws,
treaties, regulations or rulings (including a holding, judgment or order by a
court of competent jurisdiction), which change, amendment, application or
interpretation becomes effective on or after the Issue Date, the Company is, or
on the next Interest Payment Date would be, required to pay Additional Amounts,
and the Company determines that such payment obligation cannot be avoided by
the Company taking reasonable measures.
Notwithstanding the foregoing, no such notice of redemption shall be given
earlier than 90 days prior to the earliest date on which the Company would be
obligated to make such payment or withholding if a payment in respect of the
Notes were then due. Prior to the publication or, where relevant, mailing of
any notice of redemption of the Notes pursuant to the foregoing, the Company
will deliver to the Trustee an opinion of an independent tax counsel of
recognized international standing to the effect that the circumstances referred
to above exist. The Trustee shall accept such opinion as sufficient evidence of
the satisfaction of the conditions precedent described above, in which event it
shall be conclusive and binding on the holders.
Prescription
Claims against the Company for the payment of principal of, or interest, or
Additional Amounts, if any, on the Notes will become void unless presentation
for payment is made (where so required in the Senior Notes Indenture) within a
period of 10 years, in the case of principal, or Additional Amounts, if any, or
five years, in the case of interest, from the applicable original payment date
therefor.
Certain Covenants
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness; provided, however, that if no Default
or Event of Default shall have occurred and be continuing at the time, or would
occur as a consequence of the Incurrence of any such Indebtedness, the Company
may Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate
principal amount of Indebtedness of the Company and its Restricted Subsidiaries
on a consolidated basis outstanding as of the Transaction Date to (ii) the pro
forma Consolidated Cash Flow for the preceding two full fiscal quarters
multiplied by two, determined on a pro forma basis as if any such Indebtedness
had been Incurred and the proceeds thereof had been applied at the beginning of
such two fiscal quarters, would be greater than zero and less than or equal to
6.0 to 1.
(b) Notwithstanding the foregoing, (except for Indebtedness under subsection
(vii) below) the Company and (except for Indebtedness under subsections (v),
(vi), (x) and (xii) below) any Restricted Subsidiary may Incur each and all of
the following:
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(i) Indebtedness (other than Acquired Indebtedness) in an aggregate
principle amount at any one time outstanding not to exceed (Euro)100.0
million Incurred to finance the cost (provided that such Indebtedness is
Incurred at any time on or before, or within 90 days following, the
incurrence of such cost) (including the cost of design, development,
construction, acquisition, transportation, installation or integration) of
equipment, inventory or network assets used in the Permitted Business or
Equity Interests of (A) a Restricted Subsidiary that owns principally such
assets from a Person other than the Company or a Restricted Subsidiary of
the Company or (B) any Person that is principally engaged in the Permitted
Business, that would become a Restricted Subsidiary and owns principally
such assets; provided that (x) any such Indebtedness of a Restricted
Subsidiary must be Incurred under one or more Credit Facilities, under one
or more Capitalized Leases or from the vendor of the equipment, inventory
or network assets acquired with the proceeds of such Indebtedness, (y) the
amount of such Indebtedness of the Company or any Restricted Subsidiary may
not exceed the Fair Market Value of the assets so acquired and (z) the
amount of any such Indebtedness permitted to be Incurred to acquire Equity
Interests pursuant to clauses (A) or (B) shall be reduced by the amount of
any Acquired Indebtedness Incurred in such acquisition;
(ii) Indebtedness of any Restricted Subsidiary owing to and held by the
Company, Indebtedness of the Company owing to and held by any Restricted
Subsidiary or Indebtedness of any Restricted Subsidiary owing to and held
by any other Restricted Subsidiary; provided that any subsequent issuance
or transfer of any Capital Stock or any other event which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such
Indebtedness not permitted by this clause (ii); and provided, further, that
Indebtedness of the Company owing to and held by a Restricted Subsidiary
must be unsecured and subordinated in right of payment to the Notes;
(iii) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, then outstanding Indebtedness of the
Company or a Restricted Subsidiary, other than Indebtedness Incurred under
clauses (ii), (iv), (vii), (viii), (x) and (xii) of this paragraph, and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, and reasonable fees and
expenses); provided that such new Indebtedness shall only be permitted
under this clause (iii) if (A) in case the Notes are refinanced in part or
the Indebtedness to be refinanced or refunded is pari passu with the Notes,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment to the Notes at least to
the extent that the Indebtedness to be refinanced or refunded is
subordinated to the Notes, (C) the Stated Maturity of such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, is no earlier than the Stated Maturity of the Indebtedness
being refinanced or refunded and (D) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, has a Weighted Average
Life to Maturity which is not less than the remaining Weighted Average Life
to Maturity of the Indebtedness to be refinanced or refunded; and provided
further that in no event may Indebtedness of the Company be refinanced or
refunded by means of any Indebtedness of any Restricted Subsidiary pursuant
to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal bonds
or letters of credit supporting Trade Payables, in each case provided in
the ordinary course of business, (B) under Currency Agreements and Interest
Rate Agreements; provided that such agreements (x) are designed solely to
protect the Company or the Restricted Subsidiary, as the case may be,
against fluctuations in foreign currency exchange rates or interest rates
and (y) do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder, and (C) arising from agreements providing for
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indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, bankers' acceptances, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred
for the purpose of financing such acquisition by the Person acquiring all
or any portion of such business, assets or Restricted Subsidiary), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition;
(v) Indebtedness, to the extent that the net proceeds thereof are
promptly (A) used to repurchase Notes tendered in a Change of Control Offer
or (B) deposited to defease all of the Notes as described under "--Legal
Defeasance and Covenant Defeasance;"
(vi) Indebtedness of the Company represented by the Notes;
(vii) Indebtedness represented by a Guarantee of the Notes and Guarantees
of other Indebtedness of the Company by a Restricted Subsidiary in each
case permitted by and made in accordance with the "Limitation on Issuances
of Guarantees of Indebtedness by Restricted Subsidiaries" covenant;
(viii) Indebtedness under one or more Credit Facilities (which shall be
in addition to any such Indebtedness incurred under one or more Credit
Facilities under clause (b)(i) above) in an aggregate principal amount at
any one time outstanding not to exceed the greater of (x) (Euro)50.0
million and (y) 80% of Eligible Accounts Receivable at such time;
(ix) Acquired Indebtedness; provided that the aggregate amount of such
Acquired Indebtedness of the Person that is to become a Restricted
Subsidiary, or to be merged or consolidated with or into the Company or any
Restricted Subsidiary in the contemplated transaction, or to be assumed by
the Company or a Restricted Subsidiary in connection with an Asset
Acquisition, outstanding at the time of such transaction does not exceed
the Fair Market Value of the equipment, inventory, network assets and Cash
Equivalents of any Restricted Subsidiary so acquired or that are acquired
in such Asset Acquisition, as the case may be;
(x) Indebtedness of the Company not to exceed, at any one time
outstanding, the sum of (A) 2.00 times the Net Cash Proceeds received from
the issuance and sale, other than to a Subsidiary, of Equity Interests
(other than Redeemable Stock and excluding any Equity Interests issued in
connection with the Unit Offering) of the Company, less (I) the amount of
such proceeds used to make Restricted Payments as provided in clause (C)(2)
of the first paragraph or clauses (iii) or (iv) of the second paragraph of
the "Limitation on Restricted Payments" covenant and (II) if such proceeds
are used to consummate a transaction pursuant to which the Company Incurs
Acquired Indebtedness, one-half of the amount of such Acquired Indebtedness
so Incurred and (B) the Fair Market Value of any Permitted Assets acquired
by the Company in exchange for Equity Interests of the Company issued after
the Issue Date; provided, however, that in determining the Fair Market
Value of any such Permitted Assets so acquired, if the estimated Fair
Market Value of such Permitted Assets exceeds (x) (Euro)2.0 million, then
the Fair Market Value of such Permitted Assets will be determined by a
majority of the Board of Directors, which determination will be evidenced
by a resolution thereof, and (y) (Euro)10.0 million, then the Company will
deliver to the Trustee a written appraisal as to the fair market value of
such Permitted Assets prepared by an internationally recognized investment
banking or public accounting firm (or, if no such investment banking or
public accounting firm is qualified to prepare such an appraisal, by an
internationally recognized appraisal firm); and provided further that such
Indebtedness (other than the Indebtedness Incurred under one or more Credit
Facilities, under one or more Capitalized Leases or from the vendor of
assets, property or services acquired with the proceeds of such
Indebtedness) does not mature prior to the Stated Maturity of the Notes and
the Weighted Average Life to Maturity of such Indebtedness is longer than
that of the Notes;
(xi) Indebtedness outstanding as of the Issue Date; and
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(xii) Unsecured Indebtedness of the Company (in addition to Indebtedness
permitted under clauses (i) through (xi) above) in an aggregate principal
amount outstanding at any one time not to exceed (Euro)200.0 million.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included; provided,
however, that the foregoing shall not in any way be deemed to limit the
provisions of the "Limitation on Issuances of Guarantees of Indebtedness by
Restricted Subsidiaries" covenant. For purposes of determining compliance with
this "Limitation on Indebtedness" covenant, (A) in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses and (B) the principal
amount of Indebtedness issued at a price that is less than the principal amount
thereof shall be equal to the amount of the liability in respect thereof
determined in conformity with US GAAP.
(d) For purposes of determining compliance with any Euro-denominated
restriction on the Incurrence of Indebtedness, the Euro-equivalent principal
amount of Indebtedness denominated in a non-Euro currency shall be calculated
based on the relevant currency exchange rate in effect on the date such
Indebtedness was Incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided that if such
Indebtedness is Incurred to refinance other Indebtedness denominated in a non-
Euro currency, and such refinancing would cause the applicable Euro-denominated
restriction to be exceeded if calculated at the relevant currency exchange rate
in effect on the date of such refinancing, such Euro-denominated restriction
shall be deemed not to have been exceeded so long as the principal amount of
such refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness
incurred to refinance other Indebtedness, if Incurred in a different currency
from the Indebtedness being refinanced, shall be calculated based on the
currency exchange rate applicable to the currencies in which such refinancing
Indebtedness is denominated that is in effect on the date of such refinancing.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of any Equity Interest in the Company or any Restricted
Subsidiary to the holders thereof, including any dividend or distribution
payable in connection with any merger or consolidation (other than (A)
dividends or distributions payable solely in Equity Interests (other than
Redeemable Stock) of the Company, (B) dividends or distributions made only to
the Company or a Restricted Subsidiary and (C) pro rata dividends or
distributions of Capital Stock of a Restricted Subsidiary held by Persons other
than the Company or a Restricted Subsidiary), (ii) purchase, redeem, retire or
otherwise acquire for value any Equity Interests of the Company, an
Unrestricted Subsidiary or a Restricted Subsidiary (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary), (iii) make any
principal payment or redeem, purchase, repurchase, defease, or otherwise
acquire or retire for value, in each case, prior to any scheduled repayment, or
maturity, any Indebtedness of the Company that is subordinated in right of
payment to the Notes, or (iv) make any Investment, other than a Permitted
Investment, in any Person (all such payments or any other actions described in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments") unless, at the time of, and after giving effect to, the proposed
Restricted Payment:
(A) no Default or Event of Default shall have occurred and be continuing;
(B) the Company could Incur at least (Euro)1.00 of additional
Indebtedness under paragraph (a) of the "Limitation on Indebtedness"
covenant; and
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(C) the aggregate amount expended for all Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) after the Issue Date is less than the sum of (1) 50%
of the aggregate amount of the Consolidated Net Income (or, if the
Consolidated Net Income is a loss, 100% of the amount of such loss) accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter beginning immediately
following the Issue Date and ending on the last day of the last fiscal
quarter preceding the Transaction Date for which reports have been filed
with the Commission or provided to the Trustee pursuant to the "Provision
of Financial Statements and Reports" covenant, plus (2) 100% of the
aggregate Net Cash Proceeds received by the Company after the Issue Date
from the issuance and sale of its Equity Interests (other than Redeemable
Stock and excluding any Equity Interests issued in connection with the Unit
Offering) to a Person (other than a Subsidiary of the Company), except to
the extent that such Net Cash Proceeds are used (I) to purchase, redeem or
otherwise retire Equity Interests or Indebtedness as set forth below in
clause (iii) or (iv) of the immediately succeeding paragraph or (II) to
Incur Indebtedness pursuant to clause (x) of paragraph (b) of the
"Limitation on Indebtedness" covenant, plus (3) the aggregate amount by
which Indebtedness (other than any Indebtedness subordinated in right of
payment to the Notes) of the Company or any Restricted Subsidiary is
reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the Issue Date
into Equity Interests (other than Redeemable Stock and less the amount of
any cash, or the fair value of property, distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange), plus (4) without
duplication of any amount included in the calculation of Consolidated Net
Income, in the case of repayment of, or return of capital with respect to,
any Investment constituting a Restricted Payment (including the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries) made
after the Issue Date, an amount equal to the lesser of (x) the repayment
of, or the return of capital with respect to, such Investment and (y) the
cost of such Investment, in either case less the cost of the disposition of
such Investment and net of taxes.
The foregoing provisions shall not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof if, at said date of
declaration, such payment would comply with the provisions of the Senior Notes
Indenture; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment
to the Notes including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for, Indebtedness Incurred under clause (iii)
of paragraph (b) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Equity Interests in the Company
in exchange for, or out of the Net Cash Proceeds of, a substantially concurrent
offering of Equity Interests (other than Redeemable Stock and excluding any
Equity Interests issued in connection with the Unit Offering) in the Company to
any Person (other than a Subsidiary); (iv) the repurchase, redemption or other
acquisition of Indebtedness of the Company which is subordinated in right of
payment to the Notes in exchange for, or out of the Net Cash Proceeds of, a
substantially concurrent offering of Equity Interests (other than Redeemable
Stock and excluding any Equity Interests issued in connection with the Unit
Offering) in the Company to any Person (other than a Subsidiary); (v)
repurchases of Equity Interests of the Company from employees of the Company or
any of its Restricted Subsidiaries deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise price of
such options, provided that any payments made pursuant to this clause (v) may
not exceed in the aggregate (Euro)5.0 million in any fiscal year of the
Company; (vi) Investments in any Person (the primary business of which is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investment); provided that the
aggregate amount of Investments made pursuant to this clause (vi) does not
exceed the sum of (a) (Euro)25.0 million, plus (b) the amount of Net Cash
Proceeds received by the Company after the Issue Date from the issuance and
sale of its Equity Interests (other than Redeemable Stock and excluding any
Equity Interests issued in connection with the Unit Offering) to a Person
(other than a Subsidiary of the Company), except to the extent that such Net
Cash Proceeds are used (I) to make Restricted Payments pursuant to clause
(C)(2) of the first paragraph or clauses (iii) or (iv) of the second paragraph
of the "Limitation on Restricted Payments" covenant or (II) to Incur
Indebtedness pursuant to clause (x) of
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paragraph (b) of the "Limitation on Indebtedness" covenant, plus (c) the
aggregate amount by which Indebtedness (other than any Indebtedness
subordinated in right of payment to the Notes) of the Company or any Restricted
Subsidiary is reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the Issue
Date into Equity Interests (other than Redeemable Stock and less the amount of
any cash, or the fair value of property, distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange); and (vii) Investments
acquired in exchange for Capital Stock (other than Redeemable Stock) of the
Company; provided that, in the case of clauses (ii) through (vii), no Default
or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than the Restricted Payments referred to in clauses (ii) and
(vii) thereof and the Net Cash Proceeds from any issuance of Equity Interests
referred to in clauses (iii) and (iv) thereof) shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this "Limitation
on Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Equity
Interests (other than Redeemable Stock and excluding any Equity Interests
issued in connection with the Unit Offering) of the Company are used for the
redemption, repurchase or other acquisition of the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant only to the
extent such proceeds are not used for such redemption, repurchase or other
acquisition of the Notes.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Equity Interests of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not prohibit any encumbrances or restrictions:
(i) existing under or by reason of any agreement in effect on the Issue Date,
and any amendments, supplements, extensions, refinancings, renewals or
replacements of such agreements; provided that the encumbrances and
restrictions in any such amendments, supplements, extensions, refinancings,
renewals or replacements are no more restrictive than those encumbrances or
restrictions that are then in effect and that are being amended, supplemented,
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law; (iii) existing with
respect to any Restricted Subsidiary acquired by the Company or any Restricted
Subsidiary after the Issue Date, or the property or assets of such Restricted
Subsidiary, and existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired; (iv) in the case of clause
(iv) of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in
a customary manner the subletting, assignment or transfer of any property or
asset that is, or is subject to, a lease, purchase mortgage obligation,
license, conveyance or contract or similar property or asset, (B) existing by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Senior Notes Indenture or (C)
arising or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, materially
detract from the value of property or assets of the Company or any Restricted
Subsidiary to the Company or any Restricted Subsidiary; (v) with respect to a
Restricted Subsidiary and imposed pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock in, or property and assets of, such Restricted Subsidiary;
provided that such restriction shall terminate if such
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transaction is abandoned or if such transaction is not consummated within six
months of the date such agreement was entered into; or (vi) contained in the
terms of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained in
such Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the holders of the Notes than is customary
in comparable financings (as determined by the Board of Directors) and (C) the
Board of Directors determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest payments
on the Notes. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Company or any Restricted Subsidiary from creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant that limit the right of the debtor to dispose of the assets securing
such Indebtedness.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue, transfer, convey, sell, lease or otherwise dispose of
any shares of Capital Stock (including options, warrants or other rights to
purchase shares of such Capital Stock) of such Restricted Subsidiary or any
other Restricted Subsidiary to any Person (other than (i) to the Company or a
Wholly Owned Restricted Subsidiary and (ii) issuances of director's qualifying
shares of Capital Stock of foreign Restricted Subsidiaries, in each case, to
the extent required by applicable law), unless (A) the Net Cash Proceeds from
such issuance, transfer, conveyance, sale, lease or other disposition are
applied in accordance with the provisions of the "Limitation on Asset Sales"
covenant, (B) immediately after giving effect to such issuance, transfer,
conveyance, sale, lease or other disposition, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and (C) any Investment in such
Person remaining after giving effect to such issuance, transfer, conveyance,
sale, lease or other disposition would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of such
issuance, transfer, conveyance, sale, lease or other disposition (valued as
provided in the definition of "Investment").
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction or series
of transactions (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any
direct or indirect holder (or any Affiliate of such holder) of 5% or more of
any class of Capital Stock of the Company or with any Affiliate of the Company
or any Restricted Subsidiary, unless (i) such transaction or series of
transactions is on terms that are no less favorable to the Company or such
Restricted Subsidiary than could reasonably be obtained in a comparable arm's-
length transaction with a Person that is not such a holder or Affiliate, (ii)
if such transaction or series of transactions involves aggregate consideration
in excess of (Euro)2.5 million, the Company shall
have delivered to the Trustee a resolution set forth in an Officers'
Certificate adopted by a majority of the Board of Directors, including a
majority of the independent, disinterested directors, approving such
transaction or series of transactions, and certifying that such transaction or
series of transactions comply with clause (i) above and (iii) if such
transaction or series of transactions involves aggregate consideration in
excess of (Euro)7.5 million, the Company shall have delivered to the Trustee a
written opinion as to the fairness to the Company or such Restricted Subsidiary
of such transaction or series of transactions from a financial point of view
from an internationally recognized investment banking firm (or, if an
investment banking firm is generally not qualified to give such an opinion, by
an internationally recognized appraisal firm or accounting firm).
The foregoing limitation does not limit and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) the payment of dividends, distributions or other amounts by the Company
or any Restricted Subsidiary permitted by the
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"Limitation on Restricted Payments" covenant; (iv) issuances of Equity
Interests (other than Redeemable Stock) on terms consistent with the
requirements of clause (i) of the preceding paragraph; and (v) any payments or
other transactions pursuant to tax-sharing agreements between the Company and
any other Person with which the Company files a consolidated tax return or with
which the Company is part of a consolidated group for tax purposes.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) on any asset or property of the Company or any
Restricted Subsidiary without making effective provisions for all of the Notes
and all other amounts due under the Senior Notes Indenture to be directly
secured equally and ratably with (or, if the obligation or liability to be
secured by such Lien is subordinated in right of payment to the Notes, prior
to) the obligation or liability secured by such Lien; provided that any Lien
which is granted to secure the Notes under this covenant shall be discharged at
the same time as the discharge of the Lien that gave rise to the obligation to
so secure the Notes.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to, make
any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the Fair Market Value of the assets sold or disposed of and (ii) at least 75%
of the consideration received for such Asset Sale consists of cash or Cash
Equivalents or Replacement Assets or the assumption of Indebtedness which ranks
equal in right of payment with the Notes.
The Company shall, or shall cause the relevant Restricted Subsidiary to,
apply the Net Cash Proceeds from an Asset Sale within 360 days of the receipt
thereof to (A) permanently prepay, repay or purchase unsubordinated
Indebtedness of the Company or any Restricted Subsidiary providing a Guarantee
pursuant to the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" covenant or Indebtedness of any other Restricted Subsidiary, in
each case owing to a Person other than the Company or any of its Restricted
Subsidiaries, and elect to permanently reduce the commitments thereunder by the
amount of such Indebtedness prepaid, repaid or purchased, (B) invest in
Replacement Assets or (C) in any combination of prepayment, repayment, purchase
and reinvestment permitted by the foregoing clauses (A) and (B).
The Senior Notes Indenture provides that any Net Cash Proceeds from the Asset
Sale that are not invested as provided and within the time period set forth in
the second paragraph of this "Limitation on Asset Sales" covenant will be
deemed to constitute "Excess Proceeds." If at any time the aggregate amount of
Excess Proceeds exceeds (Euro)5.0 million, the Company shall, within 15
business days thereafter, make an offer to all holders of Notes (an "Asset Sale
Offer") to purchase on a pro rata basis the maximum principal amount of Notes,
that is an integral multiple of $1,000 that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the
outstanding principal amount thereof, plus accrued and unpaid interest thereon
plus Additional Amounts, if any, to the date fixed for the closing of such
offer (and, in the case of Definitive Notes, subject to the right of a holder
of record on the relevant record date to receive interest due on the relevant
interest payment date and Additional Amounts, if any, in respect thereof), in
accordance with the procedures set forth in the Senior Notes Indenture. The
Company will commence an Asset Sale Offer by publishing and mailing the notice
required pursuant to the terms of the Senior Notes Indenture, with a copy to
the Trustee. To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, subject to applicable
law, the Company may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Notes surrendered by holders
thereof exceeds the amount of Excess Proceeds, the selection of such Notes for
purchase will be made by the Trustee in the same manner as the Notes are
redeemed, as described under "--Optional Redemption." Upon completion of any
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder and will
comply with the applicable laws of any non-U.S. jurisdiction in which an Asset
Sale Offer is made, in each case, to the extent such laws or regulations are
applicable in connection with the repurchase of the Notes pursuant to an Asset
Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the Senior Notes Indenture, the
Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described in such Senior
Notes Indenture by virtue thereof.
Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Senior Notes Indenture providing for a Guarantee of all of the Company's
obligations under the Notes and the Senior Notes Indenture on terms
substantially similar to the guarantee of such Indebtedness, except that if the
Indebtedness is by its express terms subordinated in right of payment to the
Notes, any such assumption, Guarantee or other liability of such Restricted
Subsidiary with respect to such Indebtedness shall be subordinated in right of
payment to such Restricted Subsidiary's assumption, Guarantee or other
liability with respect to the Notes substantially to the same extent as such
Indebtedness is subordinated to the Notes and (ii) such Restricted Subsidiary
waives, and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any
other rights against the Company or any other Restricted Subsidiary as a result
of any payment by such Restricted Subsidiary under its Guarantee; provided that
any Restricted Subsidiary may guarantee Indebtedness of the Company under a
Credit Facility if such Indebtedness is Incurred in accordance with the
"Limitation on Indebtedness" covenant; and provided further that this paragraph
shall not be applicable to any Guarantee of any Restricted Subsidiary that
existed at the time such Person became a Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary.
Notwithstanding the foregoing, any Guarantee of all of the Company's
obligations under the Notes and the Senior Notes Indenture by a Restricted
Subsidiary may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's and each Restricted Subsidiary's Equity Interests in, or all or
substantially all of the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Senior Notes Indenture), or (ii)
the release or discharge of the guarantee which resulted in the creation of
such Guarantee, except a discharge or release by or as a result of payment
under such guarantee.
Business of the Company; Restriction on Transfers of Existing Business
The Company will not, and will not permit any Restricted Subsidiary to, be
principally engaged in any business or activity other than a Permitted
Business. In addition, the Company and any Restricted Subsidiary will not be
permitted, directly or indirectly, to transfer to any Unrestricted Subsidiary
(i) any of the licenses, permits or authorizations used in the Permitted
Business of the Company or any Restricted Subsidiary or (ii) any material
portion of the "property and equipment" (as such term is used in the Company's
consolidated financial statements) of the Company or any Restricted Subsidiary
used in the licensed service areas of the Company or any Restricted Subsidiary.
Restriction on Sale/Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless (a) the
Company or such Restricted Subsidiary would be entitled to (i) Incur
Indebtedness in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to the "Limitation on Indebtedness"
covenant and (ii) create a Lien on
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such property securing such Attributable Debt without equally and ratably
securing the Notes pursuant to the "Limitation on Liens" covenant, (b) the net
cash proceeds received by the Company or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
value (as determined in good faith by the Board of Directors) of such property
and (c) the transfer of such property is permitted by, and the Company applies
the proceeds of such transaction in compliance with, the "Limitation on Asset
Sales" covenant.
Provision of Financial Statements and Reports
The Company will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not the Company has
a class of securities registered under the Exchange Act, (i) all annual and
quarterly financial statements and other financial information that would be
required to be contained in a filing with the Commission on Forms 10-K and 10-Q
(which financial statements shall be prepared in accordance with US GAAP),
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual financial information, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K, in each case, if the Company had a class of securities registered under
the Exchange Act, whether or not the Company has such a class of securities
registered under the Exchange Act. Such quarterly financial information shall
be filed with the Commission within 45 days following the end of each fiscal
quarter of the Company, and such annual financial information shall be
furnished within 90 days following the end of each fiscal year of the Company.
Such annual financial information shall include the geographic segment
financial information required to be disclosed by the Company under Item 101(d)
of Regulation S-K under the Securities Act. The Company will also be required
(a) to file with the Trustee, and provide to each holder, without cost to such
holder, copies of such reports and documents within 15 days after the date on
which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company were so required, and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under
the Exchange Act, to supply, at the Company's cost, copies of such reports and
documents to any prospective holder promptly upon request. In addition, if and
so long as the Exchange Notes are listed on the Luxembourg Stock Exchange and
the rules of such stock exchange shall require, copies of all reports and
information described above will be available during normal business hours at
the office of the listing agent in Luxembourg.
Limitation on Investment Company Activities.
The Company will not, and will not permit any of its Restricted Subsidiaries
or controlled Affiliates to, conduct its business in a fashion that would cause
the Company to be required to register as an "investment company" (as that term
is defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act")), or otherwise to become subject to regulation under the
Investment Company Act. For purposes of establishing the Company's compliance
with this provision, any exemption which is or would become available under
Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act will be
disregarded.
Repurchase of Notes upon a Change of Control
Upon the occurrence of a Change of Control, the Company will make an offer to
purchase all or any part (equal to $1,000 in principal amount and integral
multiples thereof) of the Notes pursuant to the offer described below (the
"Change of Control Offer") at a price in cash (the "Change of Control Payment")
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, thereon to the date of repurchase, plus Additional Amounts, if any,
to the date of repurchase (and in the case of Definitive Notes, subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date and Additional Amounts, if any, in
respect thereof). The Senior Notes Indenture provides that within 30 days
following any Change of Control, the Company will publish notice of such in a
leading newspaper having a general circulation in New York (which is expected
to be The Wall Street Journal) and in Frankfurt (which is
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expected to be the Frankfurter Allgemeine Zeitung) (and if and so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange and the rules of
such stock exchange shall so require, a newspaper having a general circulation
in Luxembourg (which is expected to be the Luxemburger Wort)) or, in the case
of Definitive Notes, mail a notice to each holder (and if and so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange and the rules of
such stock exchange shall so require, a newspaper having a general circulation
in Luxembourg (which is expected to be the Luxemburger Wort)), with a copy to
the Trustee, with the following information: (i) a Change of Control Offer is
being made pursuant to the covenant entitled "Repurchase of Notes upon a Change
of Control" and all Notes properly tendered pursuant to such Change of Control
Offer will be accepted for payment; (ii) the purchase price and the purchase
date, which will be no earlier than 30 days nor later than 60 days from the
date such notice is published, or where relevant, mailed, except as may be
otherwise required by applicable law (the "Change of Control Payment Date");
(iii) any Note not properly tendered will remain outstanding and continue to
accrue interest; (iv) unless the Company defaults in the payment of the Change
of Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control Payment
Date; (v) holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the relevant Paying Agent and at the address specified in the notice prior to
the close of business on the third business day preceding the Change of Control
Payment Date; (vi) holders will be entitled to withdraw their tendered Notes
and their election to require the Company to purchase such Notes; provided that
the Paying Agent receives, not later than the close of business on the last
business day of the offer period, a facsimile transmission or letter setting
forth the name of the holder, the principal amount of Notes tendered for
purchase, and a statement that such holder is withdrawing his tendered Notes
and his election to have such Notes purchased; and (vii) holders whose Notes
are being purchased only in part will be issued new Notes equal in principal
amount to the unpurchased portion of the principal amount of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder and will
comply with the applicable laws of any non-U.S. jurisdiction in which a Change
of Control Offer is made, in each case, to the extent such laws or regulations
are applicable in connection with the repurchase of the Notes pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of the Senior Notes Indenture,
the Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations contained in the Senior
Notes Indenture by virtue thereof. The provisions relating to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in principal amount of the Notes.
The Senior Notes Indenture provides that on the Change of Control Payment
Date, the Company will, to the extent permitted by law, (i) accept for payment
all Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (ii) deposit with each Paying Agent an amount equal to the
aggregate Change of Control Payment in respect of all Notes or portions thereof
so tendered and (iii) deliver, or cause to be delivered, to the Trustee for
cancellation the Notes so accepted together with an Officers' Certificate
stating that such Notes or portions thereof have been tendered to and purchased
by the Company. The Senior Notes Indenture provides that the Paying Agent will
promptly either (x) pay to the holder against presentation and surrender (or,
in the case of partial payment, endorsement) of the Global Notes or (y) in the
case of Definitive Notes, mail to each holder of Notes the Change of Control
Payment for such Notes, and the Trustee will promptly authenticate and deliver
to the holder of the Global Notes a new Global Note or Notes or, in the case of
Definitive Notes, mail to each holder a new Definitive Note, as applicable,
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any; provided, however, that each new Definitive Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
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If the Company is unable to repay all of its Indebtedness that contains
restrictions prohibiting the repurchase of the Notes or is unable to obtain the
consents of the holders of Indebtedness, if any, of the Company outstanding at
the time of a Change of Control whose consent would be so required to permit
the repurchase of Notes, then the Company will be unable to fulfil its
repurchase obligations to holders of the Notes, thereby resulting in a breach
of the "Repurchase of Notes upon a Change of Control" covenant. Such breach
will constitute an Event of Default under the Senior Notes Indenture if it
continues for a period of 30 consecutive days after written notice is given to
the Company by the Trustee or the holders of at least 25% in aggregate
principal amount of the Notes outstanding. In addition, the failure by the
Company to repurchase Notes at the conclusion of the Change of Control Offer
will constitute an Event of Default without any waiting period or notice
requirements.
There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless the consents referred to above are obtained, require the Company
to repay all Indebtedness then outstanding which by its terms would prohibit
such Note repurchase, either prior to or concurrently with such Note
repurchase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
Consolidation, Merger and Sale of Assets
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or in a series of related transactions) to, any Person or permit
any Person to merge with or into the Company and the Company will not permit
any of its Restricted Subsidiaries to enter into any such transaction or series
of transactions if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties and assets of
the Company or the Company and its Restricted Subsidiaries, taken as a whole,
to any other Person or Persons, unless: (i) the Company will be the continuing
Person, or the Person (if other than the Company) (the "Surviving Entity")
formed by such consolidation or into which the Company is merged or that
acquired or leased such property and assets of the Company will be a
corporation organized and validly existing under the laws of the United States
of America, any state thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Company with respect to the Notes and under the
Senior Notes Indenture and the Collateral Agreement; (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis, the Company, or any Person becoming the
successor obligor of the Notes, shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to
such transaction; (iv) immediately after giving effect to such transaction on a
pro forma basis the Company, or any Person becoming the successor obligor of
the Notes, as the case may be, could Incur at least (Euro)1.00 of Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant; (v) the
Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and (iv)
above) and an opinion of counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture complies with the Senior
Notes Indenture; and (vi) the Company shall have delivered to the Trustee an
opinion of tax counsel reasonably acceptable to the Trustee stating that (A)
holders will not recognize income, gain or loss for U.S. federal or German
income tax purposes as a result of such transaction, (B) any payment of
principal, redemption price or purchase price of, premium (if any) and interest
on the Notes by the Company to a holder after the consolidation, merger,
conveyance, transfer or lease of assets will be exempt from the Taxes described
under "--Withholding Taxes" and (C) no other taxes on income (including taxable
capital gains) will be payable
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under the tax laws of the Relevant Taxing Jurisdiction (as defined in "--
Withholding Taxes") by a holder who is or who is deemed to be a non-resident of
the Relevant Taxing Jurisdiction in respect of the acquisition, ownership or
disposition of the Notes, including the receipt of principal of, premium and
interest paid pursuant to such Notes.
Events of Default
The following constitute "Events of Default" under the Senior Notes
Indenture: (a) default for 30 days or more in the payment when due of interest
on the Notes or Additional Amounts, if any, with respect to the Notes;
(b) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (c) default in the payment of principal or interest on
Notes required to be purchased pursuant to an Asset Sale Offer as described
under "Limitation on Asset Sales" or pursuant to a Change of Control Offer as
described under "Repurchase of Notes upon a Change of Control;" (d) failure to
perform or comply with the provisions described under "Consolidation, Merger
and Sale of Assets;" (e) default in the performance of or breach of any other
covenant or agreement of the Company in the Senior Notes Indenture or the
Collateral Agreement or under the Notes and such default or breach continues
for a period of 30 consecutive days after written notice by the Trustee or the
holders of 25% or more in aggregate principal amount of the Notes; (f) a
default occurs on any other Indebtedness of the Company or any Restricted
Subsidiary if (i) either (x) such default is a failure to pay principal of such
Indebtedness when due after any applicable grace period or (y) as a result of
such default, the maturity of such Indebtedness has been accelerated prior to
its scheduled maturity and such default has not been cured within the shorter
of 30 days and the applicable grace period, and such acceleration has not been
rescinded, and (ii) the principal amount of such Indebtedness, together with
the principal amount of any other Indebtedness of the Company and its
Restricted Subsidiaries that is also in default as to principal, or the
maturity of which has also been accelerated, aggregates (Euro)5.0 million or
more; (g) failure to pay final judgments and orders against the Company or any
Restricted Subsidiary (not covered by insurance) aggregating in excess of
(Euro)5.0 million (treating any deductibles, self-insurance or retention as not
so covered), which final judgments remain unpaid, undischarged and unstayed for
a period in excess of 30 consecutive days following entry of the final judgment
or order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid, discharged or stayed to exceed (Euro)5.0
million; (h) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any of its Significant Subsidiaries or for all or substantially
all of the property and assets of the Company or any of its Significant
Subsidiaries or (C) the winding up or liquidation of the affairs of the Company
or any of its Significant Subsidiaries and, in each case, such decree or order
shall remain unstayed and in effect for a period of 30 consecutive days; (i)
the Company or any of its Significant Subsidiaries (A) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any of its Significant
Subsidiaries or for all or substantially all of the property and assets of the
Company or any of its Significant Subsidiaries or (C) effects any general
assignment for the benefit of creditors; or (j) the Company challenges the Lien
on the Collateral Collateral under the Collateral Agreement prior to such time
as the Collateral Collateral is to be released to the Company, or the
Collateral shall become subject to any Lien other than the Lien under the
Collateral Agreement.
If an Event of Default (other than an Event of Default specified in clauses
(h) or (i) above) occurs and is continuing under the Senior Notes Indenture,
the Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Company, may declare the
principal of, premium, if any, interest and other monetary obligations
(including Additional Amounts, if any) on all the then outstanding Notes to be
immediately due and payable. Upon such a declaration, such principal of,
premium, if any, interest and other monetary obligations on the Notes shall be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (f) above has
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occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company and/or the relevant Restricted Subsidiaries or waived by the holders of
the relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clauses (h) or (i)
above occurs, the principal of, premium, if any, accrued interest and other
monetary obligations on the Notes then outstanding shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any holder. Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, interest and other
monetary obligations on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "--Amendment,
Supplement and Waiver."
Holders of the Notes may not enforce the Senior Notes Indenture or the Notes
except as provided in the Senior Notes Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Senior
Notes Indenture provides that the Trustee thereunder may withhold from holders
of the Notes notice of any continuing Default (except a Default relating to the
payment of principal, premium, if any, interest and Additional Amounts, if any)
if it determines that withholding notice is in their interest. The Senior Notes
Indenture further provides that the Trustee thereunder shall have no obligation
to accelerate the Notes if in the best judgment of the Trustee acceleration is
not in the best interest of the holders.
The Senior Notes Indenture requires that the Company will deliver annually an
Officers' Certificate to the Trustee certifying that a review has been
conducted of the activities of the Company and the Company's performance under
the Senior Notes Indenture and that the Company has fulfilled all obligations
thereunder or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Senior Notes
Indenture within five business days of becoming aware of any such default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company
shall have any liability for any obligations of the Company under the Notes or
Senior Notes Indenture or for any claim based on, in respect of, or by reason
of such obligations or their creation. Each holder of the Notes by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes. Such waiver and release may not be
effective to waive liabilities under the United States federal securities laws,
and it is the view of the Commission that such a waiver is against public
policy.
Legal Defeasance and Covenant Defeasance
The obligations of the Company under the Senior Notes Indenture will
terminate (other than certain obligations) and will be released upon payment in
full of all of the Notes. The Company may, at its option and at any time, elect
to have all of its obligations discharged with respect to the outstanding Notes
("Legal Defeasance") and cure all then existing Events of Default except for
(i) the rights of holders of outstanding Notes to receive payments in respect
of the principal of, premium, if any, interest and Additional Amounts, if any,
on such Notes when such payments are due or on the redemption date solely out
of the trust created pursuant to the Senior Notes Indenture, (ii) the Company's
obligations with respect to Notes concerning issuing temporary Notes, or, where
relevant, registration of such Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Senior Notes
Indenture. In addition, the Company
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may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Senior Notes Indenture ("Covenant Defeasance"), and thereafter any omission to
comply with such obligations shall not constitute a Default with respect to the
Notes. In the event Covenant Defeasance occurs, certain events (not including
non-payment on other indebtedness, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Notes,
(i) the Company must irrevocably deposit, or cause to be irrevocably
deposited, with the Trustee, in trust, for the benefit of the holders of
the Notes, cash in United States dollars, U.S. Government Securities or a
combination thereof and, in such amounts as will be sufficient, in the
opinion of an internationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, interest and
Additional Amounts, if any, due on the outstanding Notes on the stated
maturity date or on the applicable redemption date, as the case may be, of
such principal, premium, if any, interest and Additional Amounts, if any,
due on the outstanding Notes;
(ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee (A) an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (1) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (2)
since the Issue Date, there has been a change in the applicable United
States federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel in the United States shall confirm that,
subject to customary assumptions and exclusions, the holders of the
outstanding Notes will not recognize income, gain or loss for United States
federal income tax purposes as a result of such Legal Defeasance and will
be subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred and (B) an opinion of counsel in the Federal
Republic of Germany reasonably acceptable to the Trustee to the effect that
(1) holders will not recognize income, gain or loss for German income tax
purposes as a result of such Legal Defeasance and will be subject to German
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred and (2)
payments from the defeasance trust will be free and exempt from any and all
withholding and other income taxes of whatever nature imposed or levied by
or on behalf of the German government or any political subdivision thereof
or therein having the power to tax;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee (A) an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the holders of the outstanding Notes will not
recognize income, gain or loss for United States federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
such tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred and
(B) an opinion of counsel in the Federal Republic of Germany reasonably
acceptable to the Trustee to the effect that (1) holders will not recognize
income, gain or loss for German income tax purposes as a result of such
Covenant Defeasance and will be subject to German income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred and (2) payments from the
defeasance trust will be free and exempt from any and all withholding and
other income taxes of whatever nature imposed or levied by or on behalf of
the German government or any political subdivision thereof or therein
having the power to tax;
(iv) no Default or Event of Default shall have occurred and be continuing
with respect to certain Events of Default on the date of such deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument to which the Company is a party or by which the
Company is bound;
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(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable German law or U.S. federal or state law, and that the
Trustee has a perfected security interest in such trust funds for the
ratable benefit of the holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion
of counsel may be subject to customary assumptions and exclusions) each
stating that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
Satisfaction and Discharge
The Senior Notes Indenture will be discharged and will cease to be of further
effect as to all Notes issued thereunder when either (i) all such Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid and Notes for whose payment money has
theretofore been deposited in trust and thereafter repaid to the Company) have
been delivered to the Trustee for cancellation, or (ii) (A) all such Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable by reason of the making of a notice of redemption or otherwise or will
become due and payable within one year and the Company has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust an
amount of money sufficient to pay and discharge the entire indebtedness on the
Notes not theretofore delivered to the Trustee for cancellation for principal,
premium, if any, and accrued and unpaid interest and Additional Amounts, if
any, to the date of maturity or redemption; (B) no Default with respect to the
Senior Notes Indenture or the Notes shall have occurred and be continuing on
the date of such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a default
under, any other instrument to which the Company is a party or by which it is
bound; (C) the Company has paid, or caused to be paid, all sums payable by it
under the Senior Notes Indenture; and (D) the Company has delivered irrevocable
instructions to the Trustee under the Senior Notes Indenture to apply the
deposited money toward the payment of such Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an opinion of counsel to the Trustee stating that all
conditions precedent to satisfaction and discharge have been satisfied.
Withholding Taxes
All payments made by the Company on the Notes (whether or not in the form of
Definitive Notes) will be made without withholding or deduction for, or on
account of, any present or future taxes, duties, assessments or governmental
charges of whatever nature (collectively, "Taxes") imposed or levied by or on
behalf of Germany, or any jurisdiction in which the Company or any Surviving
Entity is organized or is otherwise resident for tax purposes or any political
subdivision thereof or any authority having power to tax therein or any
jurisdiction from or through which payment is made (each, a "Relevant Taxing
Jurisdiction"), unless the withholding or deduction of such Taxes is then
required by law. If any deduction or withholding for, or on account of, any
Taxes of any Relevant Taxing Jurisdiction, shall at any time be required on any
payments made by the Company with respect to the Notes, including payments of
principal, redemption price, interest or premium, the Company will pay such
additional amounts (the "Additional Amounts") as may be necessary in order that
the net amounts received in respect of such payments by the holders of the
Notes or the Trustee, as the case may be, after such withholding or deduction,
equal the respective amounts which would have been received in respect of such
payments in the absence of such withholding or deduction; except that no such
Additional Amounts will be payable with respect to:
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(i) any payments on a Note held by or on behalf of a holder or beneficial
owner who is liable for such Taxes in respect of such Note by reason of the
holder or beneficial owner having some connection with the Relevant Taxing
Jurisdiction (including being a citizen or resident or national of, or
carrying on a business or maintaining a permanent establishment in, or
being physically present in, the Relevant Taxing Jurisdiction) other than
by the mere holding of such Note or enforcement of rights thereunder or the
receipt of payments in respect thereof;
(ii) any Taxes that are imposed or withheld as a result of a change in
law after the Issue Date where such withholding or imposition is by reason
of the failure of the holder or beneficial owner of the Note to comply with
any request by the Company to provide information concerning the
nationality, residence or identity of such holder or beneficial owner or to
make any declaration or similar claim or satisfy any information or
reporting requirement, which is required or imposed by a statute, treaty,
regulation or administrative practice of the Relevant Taxing Jurisdiction
as a precondition to exemption from all or part of such Taxes;
(iii) except in the case of the winding up of the Company, any Note
presented for payment (where presentation is required) in the Relevant
Taxing Jurisdiction; or
(iv) any Note presented for payment (where presentation is required) more
than 30 days after the relevant payment is first made available for payment
to the holder.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Note been the holder of the Note, he would not have been entitled
to payment of Additional Amounts by reason of clauses (i) to (iv) inclusive
above.
Upon request, the Company will provide the Trustee with documentation
satisfactory to the Trustee evidencing the payment of Additional Amounts.
Copies of such documentation will be made available to the holders upon
request.
The Company will pay any present or future stamp, court or documentary taxes,
or any other excise or property taxes, charges or similar levies which arise in
any jurisdiction from the execution, delivery or registration of the Notes or
any other document or instrument referred to therein, or the receipt of any
payments with respect to the Notes, excluding any such taxes, charges or
similar levies imposed by any jurisdiction outside of the Federal Republic of
Germany, the United States of America or any jurisdiction in which a Paying
Agent is located, other than those resulting from, or required to be paid in
connection with, the enforcement of the Notes or any other such document or
instrument following the occurrence of any Event of Default with respect to the
Notes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Senior Notes
Indenture and the Notes issued thereunder may be amended or supplemented with
the consent of the holders of at least a majority in principal amount of the
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for the Notes), and any existing Default or Event of
Default and its consequences or compliance with any provision of the Senior
Notes Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for such Notes).
The Senior Notes Indenture provides that without the consent of each holder
affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting holder of the Notes): (i) reduce the principal amount of the
Notes whose holders must consent to an amendment, supplement or waiver, (ii)
reduce the principal of or change the fixed maturity of any such Note or alter
or waive the provisions with respect to the redemption of such Notes, (iii)
reduce the rate of or change the time for payment of interest on any Note, (iv)
waive a Default in the payment of principal of, or premium, if any, interest or
Additional Amounts, if any, on the Notes (except a rescission of acceleration
of such Notes by the holders of at least a majority in aggregate principal
amount of such Notes and a waiver of the payment default that resulted from
such acceleration with respect to such Notes), or in respect of a covenant or
provision contained in the Senior Notes
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Indenture which cannot be amended or modified without the consent of all
holders, (v) make any Note payable in money other than that stated in such
Notes, (vi) make any change in the provisions of the Senior Notes Indenture
relating to waivers of past Defaults or the rights of holders of such Notes to
receive payments of principal of, or premium, if any, interest or Additional
Amounts, if any, on such Notes, (vii) make any change in the amendment and
waiver provisions in the Senior Notes Indenture, (viii) make any change in the
provisions of the Senior Notes Indenture described under "--Withholding Taxes"
that adversely affects the rights of any holder of the Notes, (ix) amend the
terms of the Notes or the Senior Notes Indenture in a way that would result in
the loss of an exemption from any of the Taxes described thereunder or an
exemption from any obligation to withhold or deduct Taxes as described
thereunder unless the Company agrees to pay Additional Amounts, if any, in
respect thereof, (x) modify the provisions of the Collateral Agreement or the
Senior Notes Indenture relating to the Collateral in any manner adverse to the
holders or release the Collateral from the Lien under the Collateral Agreement
or permit any other obligation to be secured by the Collateral or (xi) impair
the right of any holder of the Notes to receive payment of principal of,
interest and Additional Amounts, if any, on such holder's Notes on or after the
due dates therefor or to institute suit for the enforcement of any payment on
or with respect to such holder's Notes.
The Senior Notes Indenture provides that, notwithstanding the foregoing,
without the consent of any holder of Notes, the Company and the Trustee
together may amend or supplement the Senior Notes Indenture or the Notes (i) to
cure any ambiguity, omission, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, or to
provide for additional forms of global Notes containing transfer and other
restrictions and which comply with applicable United States securities and
other laws, (iii) to comply with the covenant relating to mergers,
consolidations and sales of assets, (iv) to provide for the assumption of the
Company's obligations to holders of such Notes, (v) to make any change that
would provide any additional rights or benefits to the holders of the Notes or
that does not adversely affect the legal rights under the Senior Notes
Indenture of any such holder, (vi) to add covenants for the benefit of the
holders or to surrender any right or power conferred upon the Company, (vii) to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Senior Notes Indenture under the Trust Indenture Act or
(viii) to execute and deliver any documents necessary or appropriate to release
Liens or any Collateral as permitted by the Collateral Agreement.
The consent of the holders is not necessary under the Senior Notes Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
Notices
Notices regarding the Notes in global form will be published in a leading
newspaper having a general circulation in New York (which is expected to be The
Wall Street Journal) and in Frankfurt (which is expected to be the Frankfurter
Allgemeine Zeitung) (and, if and so long as the Exchange Notes in global form
are listed on the Luxembourg Stock Exchange and the rules of such stock
exchange shall so require, a leading daily newspaper having a general
circulation in Luxembourg (which is expected to be the Luxemburger Wort)).
Notices regarding the Definitive Notes will be published in a leading daily
newspaper having a general circulation in Luxembourg (which is expected to be
the Luxemburger Wort)) and mailed to holders by first-class mail at their
respective addresses as they appear on the registration books of the Registrar.
Notices given by publication will be deemed given on the first date on which
publication is made and notices given by first-class mail, postage prepaid,
will be deemed given five calendar days after mailing.
Concerning the Trustee
The Senior Notes Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; provided, however, if it acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
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The Senior Notes Indenture provides that the holders of a majority in
principal amount of the outstanding Notes issued thereunder will have the right
to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to certain exceptions.
The Senior Notes Indenture provides that in case an Event of Default shall
occur (which shall not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent person in the conduct of
his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Senior Notes
Indenture at the request of any holder of such Notes, unless such holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
Governing Law
The Senior Notes Indenture and the Notes and the rights and duties of the
parties thereunder are governed by, and construed in accordance with, the laws
of the State of New York.
Enforceability of Judgments
Since most of the operating assets of the Company and its Subsidiaries are
outside the United States, any judgment obtained in the United States against
the Company or a Subsidiary, including judgments with respect to the payment of
principal, premium, if any, interest, Additional Amounts, if any, redemption
price and any purchase price with respect to the Notes, may not be collectible
within the United States.
The Company has been informed by its German counsel, Besner Kreifels Weber,
that, subject to certain exceptions, the laws of the Federal Republic of
Germany permit an action to be brought in a court of competent jurisdiction in
the Federal Republic of Germany permitting the enforcement of a judgment of a
United States federal court or a court of the State of New York sitting in the
Borough of Manhattan in the City of New York awarding claims under the terms
and conditions of the Notes and the Senior Notes Indenture. In granting
permission to enforce the United States or New York State court ruling, the
respective German court would not substantively re-examine or re-litigate the
case on the merits of the subject matter thereof.
The said exception to permission of enforcement of United States and New York
State court judgments provide, among other things, that a judgment may not be
enforced in Germany, if:
. such judgment is not final and remains subject to appeal or any other
form of contestation in the United States,
. the court having rendered such judgment is not the court of competent
jurisdiction pursuant to German international law,
. the judgment contradicts an earlier final and enforceable judgment
rendered in Germany or abroad on the same subject matter,
. the enforcement of such judgment would contradict essential principles
of German law and German ordre public (which especially excludes the
enforcement of judgments with a penal or revenue character).
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Senior Notes Indenture. Reference is made to the Senior Notes Indenture for the
full definition of all terms as well as any other capitalized term used herein
for which no definition is provided. For purposes of the Senior Notes
Indenture, unless otherwise specifically indicated, the term "consolidated"
with respect to any Person refers to such Person consolidated with its
Restricted Subsidiaries, and excludes from such consolidation any Unrestricted
Subsidiary as if such Unrestricted Subsidiary were not an Affiliate of such
Person. For purposes of the following definitions and the Senior Notes
Indenture generally, all calculations and determinations shall be made in
accordance with US GAAP and shall be based upon the consolidated financial
statements of the Company and its subsidiaries prepared in accordance with US
GAAP.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person existing
at the time such Person becomes a Restricted Subsidiary or is merged or
consolidated with or into the Company or any Restricted
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Subsidiary or assumed in connection with an Asset Acquisition by the Company or
a Restricted Subsidiary and not incurred in connection with, or in anticipation
of, such Person becoming a Restricted Subsidiary, such merger or consolidation
or such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon the consummation of the transactions by which such Person becomes a
Restricted Subsidiary or is merged or consolidated with or into the Company or
any Restricted Subsidiary or such Asset Acquisition shall not be Indebtedness.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" is defined to mean (i) any capital contribution (by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated, merged with or into the Company
or any Restricted Subsidiary or (ii) an acquisition by the Company or any of
its Restricted Subsidiaries of the property and assets of any Person (other
than the Company or any of its Restricted Subsidiaries) that constitute
substantially all of an operating unit or line of business of such Person or
which is otherwise outside the ordinary course of business.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of
its Restricted Subsidiaries to any Person (other than the Company or any of its
Restricted Subsidiaries) of (i) all or any of the Equity Interests in any
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or line of business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries outside the ordinary course of business (including
the receipt of proceeds paid on account of the loss of or damage to any
property or asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceedings). For the purposes of this
definition, the term "Asset Sale" shall not include (a) any transaction
consummated in compliance with "--Consolidation, Merger and Sale of Assets" and
the creation of any Lien not prohibited by the "Limitation on Liens" covenant;
provided, however, that any transaction consummated in compliance with such "--
Consolidation, Merger and Sale of Assets" description involving a sale,
conveyance, assignment, transfer, lease or other disposal of less than all of
the properties or assets of the Company and the Restricted Subsidiaries shall
be deemed to be an Asset Sale with respect to the properties or assets of the
Company and Restricted Subsidiaries that are not so sold, conveyed, assigned,
transferred, leased or otherwise disposed of in such transaction; (b) sales of
property or equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary, as the case may be; (c) sales of telecommunications
network capacity of the Company or any Restricted Subsidiary including sales of
indefeasible rights of use of or transfers of dark fiber optic transmission
cable, in each case in the ordinary course of business; and (d) any transaction
consummated in compliance with the "Limitation on Restricted Payments"
covenant. In addition, solely for purposes of the "Limitation on Asset Sales"
covenant, any sale, conveyance, transfer, lease or other disposition of any
property or asset, whether in one transaction or a series of related
transactions, involving assets with a Fair Market Value not in excess of
(Euro)1.0 million in any fiscal year shall be deemed not to be an "Asset Sale."
"Attributable Debt" is defined to mean, in respect of a Sale/Leaseback
Transaction, as at the time of determination, the present value (discounted at
the interest rate borne by the Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
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"Board of Directors" is defined to mean the Board of Directors of the
Company.
"Board Resolution" is defined to mean a duly authorized resolution of the
Board of Directors.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, including, without
limitation, if such Person is a partnership, partnership interests (whether
general or limited) and any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, such partnership.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with US GAAP, is required to be capitalized and reflected as a liability on the
balance sheet of such Person; and "Capitalized Lease Obligation" is defined to
mean, at the time any determination thereof is to be made, the discounted
present value of the rental obligations under such lease.
"Cash Equivalents" is defined to mean, (a) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof or by the German government or any agency or
instrumentality thereof having maturities of not more than 360 days from the
date of acquisition; (b) overnight bank deposits or certificates of deposit,
eurodollar time deposits and bankers' acceptances with maturities of 360 days
or less from the date of acquisition, in each case with any commercial bank
having capital and surplus in excess of $500 million and outstanding debt rated
at least "A" or the equivalent thereof by S&P or Moody's; provided, however,
that securities deposited in the Collateral Account may have a Stated Maturity
as late as July 1, 2002; (c) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (a)
and (b) entered into with any financial institution meeting the qualifications
specified in clause (b) above; (d) commercial paper rated at least A-1 or P-1,
or the equivalent thereof by S&P or Moody's, respectively, and in each case
maturing within 360 days after the date of acquisition and (e) direct
obligations of, or obligations fully and unconditionally guaranteed by, any
member of the European Community rated at least "AAA" or the equivalent thereof
by both S&P and Moody's.
"Change of Control" is defined to mean such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) (other
than a Permitted Holder) becomes the ultimate "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of more than 35% of the total voting power
of the then outstanding Voting Stock of the Company on a fully diluted basis,
provided that the relevant threshold in the case of Cybermind Interactive
Europe and Holger Timm shall be 40%; (ii) individuals who at the beginning of
any period of two consecutive calendar years constituted the Board of Directors
(together with any directors who are members of the Board of Directors on the
date hereof and any new directors whose election by the Board of Directors or
whose nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the members of the Board of Directors then still
in office who either were members of the Board of Directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of such
Board of Directors then in office; (iii) the sale, lease, transfer, conveyance
or other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the assets of
the Company to any such "person" or "group" (other than to a Restricted
Subsidiary); or (iv) the merger or consolidation of the Company with or into
another corporation or the merger of another corporation with or into the
Company with the effect that immediately after such transaction any such
"person" or "group" of persons or entities shall have become the beneficial
owner of securities of the surviving corporation of such merger or
consolidation representing a majority of the total voting power of the then
outstanding Voting Stock of the surviving corporation.
"Commission" is defined to mean the United States Securities and Exchange
Commission, as from time to time constituted, or, if at any time after the
execution of the Indenture such commission is not existing and
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performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Consolidated Cash Flow" is defined to mean with respect to any Person for
any period, the (i) Consolidated Net Income of such Person for such period
plus, to the extent deducted in computing such Consolidated Net Income (and
without duplication), Consolidated Fixed Charges, (ii) any provision for taxes
(other than taxes (either positive or negative) attributable to extraordinary
and nonrecurring gains or losses or sales of assets), (iii) any amount
attributable to depreciation and amortization expense and (iv) all other non-
cash items reducing Consolidated Net Income (excluding any non-cash charge to
the extent that it requires or represents an accrual of, or reserve for, cash
charges in any future period), less all non-cash items increasing Consolidated
Net Income (excluding any items which represent the reversal of an accrual of,
or reserve for, anticipated cash charges at any prior period), all as
determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with US GAAP; provided, however, that there shall be
excluded therefrom the Consolidated Cash Flow (if positive) of any Restricted
Subsidiary (calculated separately for such Restricted Subsidiary in the same
manner as provided above) that is subject to a restriction which prevents the
payment of dividends or the making of distributions to the Company or another
Restricted Subsidiary to the extent of such restriction.
"Consolidated Fixed Charges" is defined to mean, with respect to any Person
for any period, Consolidated Interest Expense plus dividends declared and
payable on Preferred Stock.
"Consolidated Interest Expense" is defined to mean with respect to any Person
for any period, the aggregate amount of interest in respect of Indebtedness
(including capitalized interest, amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation)
calculated in accordance with US GAAP; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreement, and interest
on Indebtedness that is Guaranteed or secured by such Person or any of its
Restricted Subsidiaries, less the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by such Person and its Restricted Subsidiaries during such period;
excluding, however, any amount of such interest of any Restricted Subsidiary to
the extent the net income of such Restricted Subsidiary is excluded in the
calculation of Consolidated Net Income pursuant to the last proviso of such
definition.
"Consolidated Net Income" is defined to mean, for any period, the net income
(or loss) of the Company and its consolidated Restricted Subsidiaries
determined in accordance with US GAAP; provided, however, that there will not
be included in such Consolidated Net Income: (i) any net income (loss) of any
Person if such Person is not a Restricted Subsidiary, except that (a) subject
to the limitations contained in clauses (iv), (v) and (vi) below, the Company's
equity in the net income of any such Person for such period will be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (b) the Company's equity in a net loss of
any such Person (other than an Unrestricted Subsidiary) for such period will be
included in determining such Consolidated Net Income to the extent such loss
has been funded with cash from the Company or a Restricted Subsidiary; (ii) any
net income (loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (but not loss) of any Restricted Subsidiary
if such Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (a) subject to
the limitations contained in clauses (iv), (v) and (vi) below, the Company's
equity in the net income of any such Restricted Subsidiary for such period will
be included in such Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a dividend (subject,
in the case of a dividend to another Restricted Subsidiary, to the limitation
contained in this clause) and (b) the Company's equity in a net loss of any
such Restricted
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Subsidiary for such period will be included in determining such Consolidated
Net Income; (iv) any gain (loss) realized upon the sale or other disposition of
any property, plant or equipment of the Company or its consolidated Restricted
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is
not sold or otherwise disposed of in the ordinary course of business and any
gain (loss) realized upon the sale or other disposition of any Capital Stock of
any Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect
of a change in accounting principles.
"Consolidated Net Worth" is defined to mean, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of such Person and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of determination), less any amounts attributable to Redeemable Stock or
any equity security convertible into or exchangeable for Indebtedness, the cost
of treasury stock and the principal amount of any promissory notes receivable
from the sale of Equity Interests in the Company or any of its Restricted
Subsidiaries, each item to be determined in conformity with US GAAP (excluding
the effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).
"Credit Facilities" is defined to mean one or more senior credit agreements,
senior loan agreements or similar senior facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Cumulative Consolidated Cash Flow" is defined to mean, for the period
beginning on the Issue Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Cash Flow of the Company and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with US GAAP.
"Cumulative Consolidated Fixed Charges" is defined to mean, for the period
beginning on the Issue Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Fixed Charges of the Company and its
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with US GAAP.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement and any other arrangement or agreement designed to
provide protection against fluctuations in currency values.
"Default" is defined to mean any event that is, or after notice or passage of
time or both would be, an Event of Default.
"Eligible Accounts Receivable" is defined to mean the accounts receivables
(net of any reserves and allowances for doubtful accounts in accordance with US
GAAP) of any Person that are not more than 60 days past their due date and that
were entered into in the ordinary course of business on normal payment terms as
shown on the most recent consolidated balance sheet of such Person filed with
the Commission, all in accordance with US GAAP.
"Equity Interests" is defined to mean Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Collateral Account" is defined to mean the account established by the
Collateral Agent pursuant to the terms of the Collateral Agreement for the
deposit of the U.S. Government Securities purchased by, or purchased at the
direction of, the Company with a portion of the net proceeds from the Unit
Offering.
"Collateral Agent" is defined to mean The Bank of New York, as escrow agent
under the Collateral Agreement.
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"Collateral Agreement" is defined to mean the Collateral Agreement relating
to the Notes dated as of the date of the Senior Notes Indenture, among the
Collateral Agent, the Trustee and the Company, governing the disbursement of
funds from the Collateral Account.
"Collateral" is defined to mean all funds and securities in the Collateral
Account and the proceeds thereof.
"Exchange Act" is defined to mean the United States Securities Exchange Act
of 1934, as amended, or any successor statute, and the rules and regulations
thereunder.
"Fair Market Value" is defined to mean, with respect to any asset or
property, the price (after taking into account any liabilities relating to such
assets) which could be negotiated in an arm's-length free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
which is under any compulsion to complete the transaction; provided, however,
that the Fair Market Value of any such asset or assets shall be determined
conclusively by the Board of Directors acting in good faith, which
determination shall be evidenced by a resolution of such Board delivered to the
Trustee.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof) of any other Person; provided that
the term "Guarantee" shall not include endorsements for collection or deposit
in the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Equity Interests in any Person; provided
that none of the accrual of interest, the payment of interest in the form of
additional Indebtedness or the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person,
whether or not contingent (A) in respect of borrowed money, (B) evidenced by
bonds, debentures, notes or other similar instruments or letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto), (C) representing the balance deferred and unpaid of the purchase
price of property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables, (D)
representing Capitalized Lease Obligations, (ii) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (iii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person, (iv) the maximum fixed redemption or
repurchase price of Redeemable Stock of such Person at the time of
determination and (v) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation; provided that (x) the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with US GAAP, (y) money borrowed and set aside at the time of the
Incurrence of any Indebtedness for the sole purpose of prefunding the payment
of interest on such Indebtedness (and which is pledged in favor of the holders
of such Indebtedness pending such application) shall not be deemed to be
"Indebtedness" so long as such money is held to secure the
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payment of such interest and (z) Indebtedness shall not include any liability
for federal, state, local or other taxes.
"Interest Rate Agreement" is defined to mean any interest rate swap
agreement, interest rate cap agreement, interest rate insurance, and any other
arrangement or agreement designed to provide protection against fluctuations in
interest rates.
"Investment" in any Person is defined to mean any direct or indirect advance,
loan or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement but excluding advances to customers in the
ordinary course of business that are, in conformity with US GAAP, recorded as
accounts receivable on the balance sheet of such Person or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other tangible or intangible property to another Person or any payment for any
property or services for the account or use of another Person), or any purchase
or acquisition of Equity Interests, bonds, notes, debentures, or other similar
instruments issued by any other Person. For purposes of the definition of
"Unrestricted Subsidiary," the "Limitation on Restricted Payments" covenant and
the "Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant described above, (i) "Investment" shall include (a) the
Fair Market Value of the assets (net of liabilities) of any Restricted
Subsidiary of the Company at the time that such Restricted Subsidiary of the
Company is designated an Unrestricted Subsidiary and shall exclude the Fair
Market Value of the assets (net of liabilities) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of the Company and (b) the Fair Market Value, in the case of a sale
of Equity Interests in accordance with the "Limitation on the Issuance and Sale
of Capital Stock of Restricted Subsidiaries" covenant such that a Person no
longer constitutes a Restricted Subsidiary, of the remaining assets (net of
liabilities) of such Person after such sale, and shall exclude the Fair Market
Value of the assets (net of liabilities) of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of
the Company and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its Fair Market Value at the time of such
transfer.
"Issue Date" is defined to mean the date on which the Notes are originally
issued under the Senior Notes Indenture.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind in respect of an asset, whether or not
filed, recorded or otherwise perfected under applicable law (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof, any sale with recourse against the seller or any Affiliate
of the seller, or any option or other agreement to sell or give any security
interest).
"Moody's" is defined to mean Moody's Investors Service, Inc. and its
successors.
"Most Recent Balance Sheet" is defined to mean, with respect to any Person,
the most recent consolidated balance sheet of such Person reported on by an
internationally recognized firm of independent accountants without
qualification as to scope.
"Net Cash Proceeds" is defined to mean, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing agreements), (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be
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paid as a result of such sale and (iv) appropriate amounts to be provided by
the Company or any Restricted Subsidiary of the Company as a reserve against
any liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with US GAAP;
provided that such amounts which cease to be held as reserves shall be deemed
Net Cash Proceeds and (b) with respect to any issuance or sale of Equity
Interests (other than Redeemable Stock and excluding any Equity Interests
issued in connection with the Unit Offering), the proceeds of such issuance or
sale in the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or Cash
Equivalents (except to the extent (1) such obligations are financed, directly
or indirectly, with money borrowed from the Company or any Restricted
Subsidiary or otherwise financed or sold with recourse to the Company or any
Restricted Subsidiary or (2) the purchase of the Equity Interests is otherwise
financed, directly or indirectly, by the Company or any Restricted Subsidiary,
including through funds contributed, extended, guaranteed or otherwise advanced
by the Company or any Affiliate) and proceeds from the conversion of other
property received when converted to cash or Cash Equivalents, net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection
with such issuance or sale and net of taxes paid or payable as a result
thereof.
"Officers' Certificate" is defined to mean a certificate signed on behalf of
the Company by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company that meets the requirements set
forth in the Senior Notes Indenture.
"Permitted Assets" is defined to mean, with respect to any Person, assets
used in the Permitted Business (or Equity Interests of a Person that becomes a
Restricted Subsidiary, the assets of which consist principally of such
Permitted Assets) that are purchased or acquired by the Company or a Restricted
Subsidiary after the Issue Date.
"Permitted Business" is defined to mean the business of (i) operating an
Internet connectivity or internet enhancement service as it may exist from time
to time, including, without limitation, providing dial up or dedicated internet
service, web hosting or co-location services, security solutions, configuration
services, electronic commerce, intranet solutions, data backup and restoral,
business content and collaboration or consulting services with respect to the
foregoing (including, without limitation, any business conducted by the Issuer
or any Restricted Subsidiary on the Issue Date), (ii) transmitting or providing
services relating to the transmission of, voice, video or data through owned or
leased transmission facilities, (iii) constructing, creating, developing,
providing or marketing communications-related network equipment, products,
software and other devices for use in an Internet or telecommunications
business, or (iv) evaluating, participating in or pursuing any other activity
or opportunity that is primarily related to those identified in clause (i),
(ii) or (iii) above. A good faith determination by a majority of the Board of
Directors as to whether a business meets the requirements of this definition
shall be conclusive, absent manifest error.
"Permitted Holder" is defined to mean Andreas Eder, Alessandro Giacalone and
any Affiliate of the foregoing Persons.
"Permitted Investment" is defined to mean (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, the Company or a Restricted
Subsidiary; (ii) payroll, travel and similar advances to cover matters that are
expected at the time of such advance ultimately to be treated as expenses in
accordance with US GAAP; (iii) stock, obligations or securities received (a) in
satisfaction of judgments or (b) in settlement of debts, or as a result of
foreclosure, perfection or enforcement of any Lien, in each case under this
clause (b) arising in the ordinary course of business and not in contemplation
of the acquisition of such stock, obligations or securities; (iv) Investments
in Cash Equivalents; (v) Investments made as a result of the receipt of noncash
consideration from any Asset Sale made in
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compliance with the "Limitation on Asset Sales" covenant; (vi) Investments in
negotiable instruments held for collection, lease, utility and workers'
compensation, performance and other similar pledges or deposits, and other
pledges or deposits permitted under the "Limitation on Liens" covenant; (vii)
obligations under Interest Rate Agreements or Currency Agreements; provided
that such agreements (a) are designed solely to protect the Company or the
Restricted Subsidiary, as the case may be, against fluctuations in foreign
currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; (viii) Investments
made in the ordinary course of business and on ordinary business terms in the
Permitted Business in consortia formed to construct transmission infrastructure
for use primarily in the Permitted Business, provided such Investment entitles
the Company to rights of way or rights of use on such transmission
infrastructure; and (ix) any Investment in Pledged Securities.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with US GAAP shall have been made; (ii) statutory Liens
of landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with US GAAP shall have been made; (iii) Liens incurred
or deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or
other similar legislation and other insurance-related obligations (including,
without limitation, pledges or deposits securing liability to insurance
carriers under insurance or self-insurance arrangements); (iv) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (v) Liens (including extensions and renewals thereof)
upon real or personal property of a Restricted Subsidiary purchased or leased
after the Issue Date; provided that (a) such Lien is created solely for the
purpose of securing Indebtedness Incurred by such Restricted Subsidiary in
compliance with the "Limitation on Indebtedness" and "Limitation on Issuances
of Guarantees of Indebtedness by Restricted Subsidiaries" covenants (1) to
finance the cost of the item of property or assets subject thereto and such
Lien is created prior to, at the time of or within six months after the later
of the acquisition and the Incurrence of such Indebtedness or (2) to refinance
any Indebtedness of a Restricted Subsidiary previously so secured, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost and (c) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets; (vi) any interest or title
of a lessor in the property subject to any Capitalized Lease or operating lease
of a Restricted Subsidiary which, in each case, is permitted under the Senior
Notes Indenture; (vii) Liens on property of, or on Equity Interests in or
Indebtedness of, any Person existing at the time such Person becomes, or
becomes a part of, any Restricted Subsidiary; provided that such Liens were not
created, incurred or assumed in contemplation of such transaction and do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets so acquired; (viii) Liens arising
from the rendering of a final judgment or order against the Company or any
Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (ix) Liens encumbering customary initial deposits and margin deposits
and other Liens that are either within the general parameters customary in the
industry or incurred in the ordinary course of business, in each case, securing
Indebtedness under Interest Rate Agreements and Currency Agreements; (x) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of the Company and its Restricted Subsidiaries prior to the
Issue Date; (xi) Liens existing on the Issue Date or securing the Notes or any
Guarantee of the Notes; (xii) Liens granted after the Issue Date on any assets
or Equity Interests in the Company or its Restricted Subsidiaries created in
favor of the holders; (xiii) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or another
Restricted Subsidiary to secure Indebtedness owing to the Company or such
Restricted Subsidiary and Incurred in
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compliance with clause (ii) of paragraph (b) of the "Limitation on
Indebtedness" covenant; (xiv) Liens created in connection with the incurrence
of any Indebtedness permitted to be Incurred under clause (iii) of paragraph
(b) of the "Limitation on Indebtedness" covenant; provided that the
Indebtedness which it refinances is secured by similar Liens; (xv) Liens
securing Indebtedness under Credit Facilities incurred in compliance with
clause (viii) of paragraph (b) of the "Limitation on Indebtedness" covenant;
(xvi) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, subleases, licenses, sublicenses, obligations for utilities,
statutory or regulatory obligations, bankers' acceptances, letters of credit,
surety and appeal bonds, government or other contracts, completion guarantees,
performance and return-of-money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (xvii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xviii) Liens created to secure
Attributable Debt in connection with Sale/Leaseback Transactions permitted to
be entered into by the "Restriction on Sale/Leaseback Transactions" covenant;
and (xix) Liens with respect to the Collateral Account (or any similar escrow
account established in connection with the issuance of any Additional Notes or
any other notes which are pari passu with the Notes) arising under the
Collateral Agreement (or any similar escrow agreement established in connection
with the issuance of any Additional Notes or any other notes which are pari
passu with the Notes).
"Pledged Securities" is defined to mean the U.S. Government Securities
purchased by the Company and deposited in the Collateral Account (or any
similar escrow account established in connection with the issuance of any
Additional Notes).
"Preferred Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) which is preferred as to the payment of dividends
or distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over Equity Interests of
any other class in such Person.
"Pro forma Consolidated Cash Flow" is defined to mean with respect to any
Person for any period, the Consolidated Cash Flow of such Person for such
period calculated on a pro forma basis to give effect to any Asset Sale or
Asset Acquisition (including acquisitions of other Persons by merger,
consolidation or purchase of Equity Interests) during such period as if such
Asset Sale or Asset Acquisition had taken place on the first day of such period
and income (or losses) ceased to accrue or accrued, as the case may be,
therefrom from such date.
"Redeemable Stock" is defined to mean, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness
or Redeemable Stock or (iii) is redeemable or must be purchased, upon the
occurrence of certain events or otherwise, by such Person at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to purchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Notes shall not constitute Redeemable Stock if (x) the "asset sale" or "change
of control" provisions applicable to such Capital Stock are not more favorable
to the holders of such Capital Stock than the terms applicable to the Notes and
described under the "Limitation on Asset Sales" covenant and "--Repurchase of
Notes upon a Change of Control" and (y) any such requirement only becomes
operative after compliance with such terms applicable to the Notes including
the purchase of any Notes tendered pursuant thereto.
"Replacement Assets" is defined to mean any property, plant or equipment of a
nature or type that are used or usable in the Permitted Business (as determined
in good faith by the Board of Directors, whose determination shall be evidenced
by a Board Resolution).
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"Restricted Subsidiary" is defined to mean, at any time, any direct or
indirect Subsidiary of the Company that is then not an Unrestricted Subsidiary.
"S&P" is defined to mean Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, and its successors.
"Sale/Leaseback Transaction" is defined to mean an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person, other than leases between the Company
and a Wholly Owned Restricted Subsidiary or between Wholly Owned Restricted
Subsidiaries.
"Securities Act" is defined to mean the United States Securities Act of 1933,
as amended, or any successor statute, and the rules and regulations thereunder.
"Share Capital" is defined to mean, at any time of determination, the stated
capital of the Equity Interests (other than Redeemable Stock) and additional
paid-in capital of the Company as set forth on the Most Recent Balance Sheet of
the Company at such time.
"Significant Subsidiary" is defined to mean, at any time of determination,
any Restricted Subsidiary that, together with its Subsidiaries, (i) for the
most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Stated Maturity" is defined to mean, (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" is defined to mean, with respect to any Person (i) any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is at the time of determination owned, directly or
indirectly, by such Person or one or more other Subsidiaries of such Person and
(ii) any partnership, joint venture, limited liability company or similar
entity of which (A) more than 50% of the capital accounts, distribution rights,
total equity and voting interests or general or limited partnership interests,
as applicable, are owned or controlled, directly or indirectly, by such Person
or one or more of the other Subsidiaries of that Person or a combination
thereof whether in the form of membership, general, special or limited
partnership or otherwise and (B) such Person or any Restricted Subsidiary of
such Person is a controlling general partner, co-venturer, manager or similar
position or otherwise controls such entity.
"Trade Payables" is defined to mean any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by the Company or any of its Restricted Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods and
services.
"Transaction Date" is defined to mean, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company which at the time of determination is an Unrestricted Subsidiary (as
designated by the Board of Directors in the manner provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary, or any of its Subsidiaries, owns any Equity Interests or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary;
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provided that (a) the Company certifies in an Officers' Certificate that such
designation complies with the covenants described under "Limitation on
Restricted Payments," (b) such Subsidiary is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might reasonably be obtained in a
comparable arm's-length transaction at the time from Persons who are not
Affiliates of the Company, (c) neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (1) to subscribe for
additional Equity Interests in such Subsidiary or any Subsidiary of such
Subsidiary or (2) to maintain or preserve such Subsidiary's financial condition
or to cause such Subsidiary to achieve any specified levels of operating
results and (d) such Subsidiary and its Subsidiaries have not at the time of
designation, and do not thereafter, Incur any Indebtedness other than
Unrestricted Subsidiary Indebtedness. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided
that immediately after giving effect to such designation (x) the Company could
Incur (Euro)1.00 of additional Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant described above on a pro forma basis
taking into account such designation and (y) no Default or Event of Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Unrestricted Subsidiary Indebtedness" is defined to mean Indebtedness of any
Unrestricted Subsidiary (i) as to which neither the Company nor any Restricted
Subsidiary is directly or indirectly liable (by virtue of the Company or any
such Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), and (ii) which, upon
the occurrence of a default with respect thereto, does not result in, or permit
any holder of any Indebtedness of the Company or any Restricted Subsidiary to
declare, a default on such Indebtedness of the Company or any Restricted
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"US GAAP" is defined to mean, at any date of determination, generally
accepted accounting principles as in effect in the United States of America
which are applicable at the date of determination and which are consistently
applied for all applicable periods.
"U.S. Government Securities" is defined to mean direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which obligations or guarantee the full faith and credit of the United States
is pledged and are not callable or redeemable at the option of the issuer
thereof.
"Voting Stock" is defined to mean with respect to any Person, Capital Stock
of any class or kind ordinarily entitled to vote for the election of directors
thereof at a meeting of Stockholders called for such purpose, without the
occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" is defined to mean, at any date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) (a) the sum of the products of the number of years from such date
of determination to the dates of each successive scheduled principal payment
of, or redemption or similar payment with respect to, such Indebtedness
multiplied by (b) the amount of such principal payment, by (ii) the sum of all
such principal payments.
"Wholly Owned Restricted Subsidiary" is defined to mean any Restricted
Subsidiary all of the outstanding voting Equity Interests (other than
directors' qualifying shares) of which are owned, directly or indirectly, by
the Company.
Exchange Offer and Registration Rights
The Company entered into a registration rights agreement with the initial
purchasers in connection with the Unit Offering (the "Registration Rights
Agreement"), pursuant to which the Company agreed to file with
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the Commission, subject to the provisions described below, a registration
statement (the "Exchange Offer Registration Statement") on an appropriate form
permitting registration of the Exchange Notes and to permit resales of Exchange
Notes held by broker-dealers as contemplated by the Registration Rights
Agreement. The Registration Rights Agreement provides that unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the
Company will (i) file the Exchange Offer Registration Statement with the
Commission on or prior to 90 days after the Issue Date, (ii) use its best
efforts to cause the Exchange Offer Registration Statement to be declared
effective by the Commission within 150 days after the Issue Date, (iii) (A)
file all pre-effective amendments to such Registration Statement as may be
necessary in order to cause such Registration Statement to become effective,
(B) file, if applicable, a post-effective amendment to such Registration
Statement pursuant to Rule 430A under the Securities Act and (C) cause all
necessary filings in connection with the registration and qualifications of the
Exchange Notes to be made under the blue sky laws of such jurisdictions as are
necessary to permit consummation of the Exchange Offer and (iv) use its best
efforts to cause the Exchange Offer to be consummated on or prior to 30 days
after the date on which the Exchange Offer Registration Statement is declared
effective by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until the earliest to occur of (i) the date on which such Note has been
exchanged by a person other than a broker-dealer for Exchange Notes in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of such Note for one or more Exchange Notes, the date on which such
Exchange Notes are sold to a purchaser who receives from such broker-dealer on
or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Note has
been effectively registered under the Securities Act and disposed of in
accordance with a shelf registration statement (the "Shelf Registration
Statement") or (iv) the date on which such Note is eligible for distribution to
the public pursuant to Rule 144 under the Securities Act.
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided, however, that in the case of
broker-dealers participating in the Exchange Offer, a prospectus meeting the
requirements of the Securities Act must be delivered by such broker-dealers in
connection with resales of the Exchange Notes. The Company has agreed, for a
period of 180 days after consummation of the Exchange Offer, to make available
a prospectus meeting the requirements of the Securities Act to any such broker-
dealer for use in connection with any resale of any Exchange Notes acquired in
the Exchange Offer. A broker-dealer that delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
Holders of Notes that desire to exchange such Notes for Exchange Notes in the
Exchange Offer will be required to make certain representations, including
representations that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of the Company, or if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes that were acquired as a result
of market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
The Company has agreed to pay all expenses incident to the Exchange Offer and
will indemnify the initial purchasers in the Unit Offering against certain
liabilities, including liabilities under the Securities Act.
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If (i) the Company is not permitted to file the Exchange Offer Registration
Statement or to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy, (ii) any holder of Transfer
Restricted Securities that is a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) notifies Cybernet at least 20 business days
prior to the consummation of the Exchange Offer that (a) applicable law or
Commission policy prohibits the holder from participating in the Exchange
Offer, (b) such holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such holder or (c) such holder is a broker-dealer
and holds Notes acquired directly from the Company or an affiliate of the
Company, (iii) the Exchange Offer is not for any other reason consummated
within 180 days of the Issue Date or (iv) the Exchange Offer has been completed
and, in the opinion of counsel for the initial purchasers, a Registration
Statement must be filed and a prospectus must be delivered by the initial
purchasers in connection with any offering or sale of Transfer Restricted
Securities, the Company will use its best efforts to: (A) file a Shelf
Registration Statement within 90 days of the earliest to occur of (i) through
(iv) above and (B) cause the Shelf Registration Statement to be declared
effective with respect to each series of Notes by the Commission on or prior to
the 150th day after such obligation arises. Cybernet shall use its best efforts
to keep such Shelf Registration Statement continuously effective, supplemented
and amended to ensure that it is available for resales of Notes by the holders
of Transfer Restricted Securities entitled to this benefit and to ensure that
such Shelf Registration Statement conforms and continues to conform with the
requirements of the Registration Rights Agreement, the Securities Act and the
policies, rules and regulations of the Commission, as announced from time to
time, until the second anniversary of the Issue Date; provided, however, that
during such two-year period the holders of Notes may be prevented or restricted
by the Company from effecting sales pursuant to the Shelf Registration
Statement as more fully described in the Registration Rights Agreement. A
holder of Notes that sells its Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such holder (including
certain indemnification and contribution obligations).
If (i) the Company fails to file with the Commission any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified therein for such filing, (ii) any of such Registration Statements is
not declared effective by the Commission on or prior to the date specified for
such effectiveness in the Registration Rights Agreement (the "Effectiveness
Target Date"), (iii) the Exchange Offer has not been consummated within 30 days
after the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement or (iv) any Registration Statement required by the
Registration Rights Agreement is filed and declared effective but thereafter
ceases to be effective or fails to be usable for its intended purpose without
being succeeded within five business days by a post-effective amendment to such
Registration Statement that cures such failure and that is itself immediately
declared effective (each such event referred to in clauses (i) through (iv)
above, a "Registration Default"), additional cash interest ("Liquidated
Damages") shall accrue to each holder of the affected Notes commencing upon the
occurrence of such Registration Default in an amount equal to 0.50% per annum
of the principal amount of Notes held by such holder. The amount of Liquidated
Damages will increase by an additional 0.50% per annum of the principal amount
of the Notes with respect to each subsequent 90-day period (or portion thereof)
until all Registration Defaults have been cured, up to a maximum rate of
Liquidated Damages of 1.50% per annum of the principal amount of the Notes. All
accrued Liquidated Damages will be paid to holders by the Company in the same
manner as interest is paid pursuant to the Senior Notes Indenture. Following
the cure of all Registration Defaults relating to any particular Transfer
Restricted Securities, the accrual of Liquidated Damages with respect to such
Transfer Restricted Securities will cease.
The summaries herein of certain provisions of the Senior Notes Indenture and
the Registration Rights Agreement do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all the provisions of
the Senior Notes Indenture and the Registration Rights Agreement, copies of
which will be made available upon request to the Company.
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DESCRIPTION OF MATERIAL INDEBTEDNESS
On August 26, 1999, we sold $50,002,183 in aggregate initial accreted value
of our 13.0% Convertible Senior Subordinated Discount Notes due 2009. Each
Discount Note was sold at an initial accreted value of $534.78, a substantial
discount from its principal amount at maturity of $1,000. There will not be any
accrual of cash interest on the Discount Notes prior to August 15, 2004 or
payment of cash interest prior to February 15, 2005. Holders of the Discount
Notes may convert the Discount Notes at their option into our common stock at
any time after August 26, 2000. The number of shares of our common stock
issuable upon conversion of the Discount Notes is equal to the accreted value
of the Discount Notes being converted on the date of conversion divided by
$25.00, subject to adjustment under certain events. If the market price of our
common stock exceeds certain prices at any time after August 26, 2000, the
Discount Notes will automatically convert into shares of our common stock at
the same conversion ratio. The net proceeds of the Discount Notes Offering were
$47,502,074, which we intend to use for capital expenditures and general
corporate purposes.
On August 26, 1999, we sold (Euro)25 million aggregate principal amount of
our 13.0% Convertible Senior Subordinated Pay-In-Kind Notes due 2009. We will
pay interest on the PIK Notes in the form of additional notes issued under the
pay-in-kind feature through August 15, 2004. From that date to maturity
interest will accrue and will be paid in cash. Holders of the PIK Notes and any
additional notes issued under the pay-in-kind feature may convert both types of
notes at their option into our common stock at any time after August 26, 2000.
The number of shares of our common stock issuable upon conversion of these
notes is equal to the principal value of the notes being converted divided by
$25.00, subject to adjustment under certain circumstances. The net proceeds of
the PIK Notes Offering were (Euro)23,750,000, which we intend to use for
capital expenditures and general corporate purposes.
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CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Exchange
Notes as of the date hereof. Except where noted, it deals only with the
Exchange Notes held as capital assets and does not deal with special
situations, such as those of dealers in securities or currencies, financial
institutions, tax-exempt entities, life insurance companies, persons holding
Exchange Notes as a part of a hedging, integrated, conversion or constructive
sale transaction or a straddle or holders of Exchange Notes whose "functional
currency" is not the United States dollar. Furthermore, the discussion below is
based upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in United States federal income tax consequences different from those
discussed below. Likewise, this summary does not address the federal income tax
consequences of the acquisition of Exchange Notes as an asset separate from the
Warrants. Persons considering the acquisition, ownership or disposition of the
Exchange Notes should consult their own tax advisors concerning the United
States federal income tax consequences in light of their particular situations
as well as any consequences arising under the laws of any other taxing
jurisdiction.
As used herein, a "U.S. Holder" means a holder of an Exchange Note that is
(i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) a trust (X) that is subject to the supervision of a court within the
United States and the control of one or more United States persons as described
in section 7701(a)(30) of the Code, or (Y) that has a valid election in effect
under applicable U.S. Treasury regulations to be treated as a United States
person. A "Non-U.S. Holder" is a holder of an Exchange Note that is not a U.S.
Holder.
Exchange Offer
An exchange of Outstanding Notes for Exchange Notes pursuant to the Exchange
Offer will not be a taxable event for United States federal income tax
purposes. The Exchange Notes received by a Holder pursuant to the Exchange
Offer generally will be treated as a continuation of the Outstanding Notes in
the hands of such Holder. A U.S. Holder must continue to include original issue
discount ("OID") on the Exchange Notes and will have the same tax basis and
holding period in the Exchange Notes as the Outstanding Notes.
Payments of Interest
Except as described below under "Original Issue Discount," interest on an
Exchange Note will generally be taxable to a U.S. Holder as ordinary income at
the time it is paid or accrued in accordance with the U.S. Holder's method of
accounting for tax purposes.
Sale, Exchange and Retirement of Notes
A U.S. Holder's tax basis in a Note will, in general, be the U.S. Holder's
cost therefor increased by OID.
Upon the sale, exchange, retirement or other disposition of an Exchange Note,
a U.S. Holder will recognize gain or loss equal to the difference between the
amount realized upon the sale, exchange, retirement or other disposition (less
any accrued qualified stated interest not previously included in income, which
will be taxable as such) and the adjusted tax basis of the Exchange Note.
Generally, such gain or loss will be capital gain or loss. Capital gains of
individuals derived in respect of capital assets held for more than one year
are eligible for reduced rates of taxation. The deductibility of capital losses
is subject to limitations.
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Applicable High Yield Discount Obligations
The Exchange Notes are "applicable high yield discount obligations"
("AHYDOs"), as defined in the Code, because (i) the yield to maturity on the
Notes exceeds the "applicable federal rate" in effect at the time of their
issuance (the "AFR") plus five percentage points, and (ii) the Notes have
"significant OID" as that term is defined in the Code. Accordingly, the Company
will not be allowed to take a deduction for interest (including OID) accrued on
the Notes for U.S. federal income tax purposes until such time as the Company
actually pays such interest (including OID). Moreover, because the yield to
maturity on the Notes exceeds the sum of the AFR and 6% (such excess shall be
referred to hereinafter as the "Disqualified Yield"), the deduction for
interest (including OID) accrued on the Notes will be permanently disallowed
for U.S. federal income tax purposes to the extent such interest or OID is
attributable to the Disqualified Yield on the Notes ("Dividend-Equivalent
Interest"). For purposes of the dividends received deduction, such Dividend-
Equivalent Interest will be treated as a dividend to the extent it is deemed to
have been paid out of the Company's current or accumulated earnings and
profits. Accordingly, a U.S. Holder of the Notes that is a corporation will be
entitled, subject to applicable limitations, to take a dividends received
deduction with respect to any Dividend-Equivalent Interest received by such
corporate holder on such Note.
Original Issue Discount
The Exchange Notes will be issued with OID in an amount equal to the
difference between the principal amount of the Exchange Notes and the issue
price of the Exchange Notes which was established by allocating the purchase
price between Notes and Warrants issued in the Unit Offering. U.S. Holders
should be aware that they generally must include OID in gross income in advance
of the receipt of cash attributable to that income.
The amount of OID includible in income by a U.S. Holder of an Exchange Note
is the sum of the "daily portions" of OID with respect to the Exchange Note for
each day during the taxable year or portion of the taxable year in which such
U.S. Holder held such Exchange Note ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. The "accrual period" for an
Exchange Note may be 6 months or less and may vary in length over the term of
the Exchange Note, provided that each scheduled payment of principal or
interest occurs on the first day or the final day of an accrual period. The
amount of OID allocable to any accrual period is an amount equal to the excess,
if any, of (a) the product of the Exchange Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period) over (b) the sum of any stated interest
allocable to the accrual period. OID allocable to a final accrual period is the
difference between the amount payable at maturity (other than a payment of
stated interest) and the adjusted issue price at the beginning of the final
accrual period. The "adjusted issue price" of an Exchange Note at the beginning
of any accrual period is equal to its issue price increased by the accrued OID
for each prior accrual period. Under these rules, a U.S. Holder will have to
include in income increasingly greater amounts of OID in successive accrual
periods. The Company is required to provide information returns stating the
amount of OID accrued on Notes held of record by persons other than
corporations and other exempt holders.
U.S. Holders may elect to treat all interest on any Exchange Note as OID and
calculate the amount includible in gross income under the constant yield method
described above. For the purposes of this election, interest includes stated
interest, acquisition discount, OID, de minimis OID and unstated interest. The
election is to be made for the taxable year in which the U.S. Holder acquired
the Exchange Note, and may not be revoked without the consent of the IRS. U.S.
Holders should consult with their own tax advisors about this election.
In the event Exchange Notes are held by a related foreign person (within the
meaning of the Code), the Company generally may not deduct OID attributable to
such Exchange Notes until paid.
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Non-U.S. Holders
Under present United States federal income and estate tax law, and subject to
the discussion below concerning backup withholding:
(a) payments of principal or interest (including OID) on an Exchange Note
owned by a Non-U.S. Holder will not be subject to United States withholding
tax provided (i) that the beneficial owner does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote within the meaning of
section 871(h)(3) of the Code and the regulations thereunder, (ii) the
beneficial owner is not a controlled foreign corporation that is related to
the Company through stock ownership, (iii) the beneficial owner is not a
bank whose receipt of interest on an Exchange Note is described in section
881(c)(3)(A) of the Code and (iv) the beneficial owner satisfies the
statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder;
(b) gain realized by a Non-U.S. Holder upon the sale, exchange,
retirement or other disposition of an Exchange Note will not be subject to
U.S. withholding tax; and
(c) an Exchange Note beneficially owned by an individual who at the time
of death is a Non-U.S. Holder will not be subject to United States federal
estate tax as a result of such individual's death, provided that such
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote within the meaning of section 871(h)(3) of the Code and provided that
the interest payments with respect to such Exchange Note would not have
been, if received at the time of such individual's death, effectively
connected with the conduct of a United States trade or business by such
individual. However, Warrants and Warrant Shares held by an individual Non-
U.S. Holder at the time of death will be included in such holder's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
To satisfy the requirement referred to in (a)(iv) above, the beneficial owner
of such Exchange Note, or a financial institution holding the Exchange Note on
behalf of such owner, must provide, in accordance with specified procedures, a
paying agent of the Company with a statement to the effect that the beneficial
owner is not a United States person. Currently, these requirements will be met
if (1) the beneficial owner provides his name and address, and certifies, under
penalties of perjury, that he is not a United States person (which
certification may be made on an IRS W-8 (or successor form)), or (2) a
financial institution holding the Exchange Note on behalf of the beneficial
owner certifies, under penalties of perjury, that such statement has been
received by it and furnishes a paying agent with a copy thereof. Under recently
finalized Treasury regulations (the "Final Regulations"), the statement
requirement referred to in (a)(iv) above may also be satisfied with other
documentary evidence for interests paid after December 31, 2000 with respect to
an offshore account or through certain foreign intermediaries.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments interest (including OID)
made to such Non-U.S. Holder will be subject to a 30% withholding tax unless
the beneficial owner of the Note provides the Company or its paying agent, as
the case may be, with a properly executed (1) IRS Form 1001 (or successor form)
claiming an exemption from or reduction in withholding under the benefit of a
tax treaty, or (2) IRS Form 4224 (or successor form) stating that interest paid
on the Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States. Under the Final Regulations, Non-U.S. Holders will generally be
required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224,
although alternative documentation may be applicable in certain situations.
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If a Non-U.S. Holder of an Exchange Note is engaged in a trade or business in
the United States and if interest on the Exchange Note or gain realized on the
sale, exchange or other disposition of the Exchange Note is effectively
connected with the conduct of such trade or business, the Non-U.S. Holder,
although exempt from the withholding tax discussed above, will be subject to
United States federal income tax on such interest (including OID) on a net
income basis in the same manner as if it were a U.S. Holder. In addition, if
such Non-U.S. Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or lesser rate under an applicable treaty) of its
effectively connected earnings and profits for the taxable year, subject to
adjustments.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of an Exchange Note generally will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
a trade or business in the United States of the Non-U.S. Holder, or (ii) in the
case of a Non-U.S. Holder who is an individual, such individual is present in
the United States for 183 days or more in the taxable year of such sale,
exchange, retirement or other disposition, and certain other conditions are
met.
Special Rules may apply to certain Non-U.S. Holders, such as "controlled
foreign corporations," "passive foreign investment companies" and "foreign
personal holding companies," that are subject to special treatment under the
Code. Such entities should consult their own tax advisors to determine the
United States federal, state, local and other tax consequences that may be
relevant to them.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain payments
of principal and interest (including OID) paid on the Exchange Notes and to the
proceeds of the sale of an Exchange Note made to U.S. Holders other than
certain exempt recipients (such as corporations). A 31% backup withholding tax
will apply to such payments if the U.S. Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
In general, information reporting and backup withholding will not apply with
respect to payments made on the Exchange Notes by the Company or any paying
agent to Non-U.S. Holders if a statement described in (a)(iv) under "Non-U.S.
Holders" has been received (and the payor does not have actual knowledge that
the beneficial owner is a United States person). On and before December 31,
2000, information reporting and backup withholding will not apply to dividends
paid to a Non-U.S. Holder at an address outside the United States (unless the
payer has knowledge that the payee is a United States person). After December
31, 2000, however, a Non-US Holder will be subject to back-up withholding
unless applicable certification requirements are met.
In addition, backup withholding and information reporting will not apply if
payments of the principal and interest (including OID) on an Exchange Note are
paid or collected by a foreign office of a custodian, nominee or other foreign
agent on behalf of the beneficial owner of such Exchange Note, or if a foreign
office of a broker (as defined in applicable Treasury regulations) pays the
proceeds of the sale of an Exchange Note, to the owner thereof. If, however,
such nominee, custodian, agent or broker is, for United States federal income
tax purposes, a United States person, a controlled foreign corporation or a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or, for taxable
years beginning after December 31, 2000, a foreign partnership in which one or
more United States persons, in the aggregate, own more than 50% of the income
or capital interests in the partnership or which is engaged in a trade or
business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records
that the beneficial owner is not a United States person and certain other
conditions are met, or (2) the beneficial owner otherwise establishes an
exemption.
Payments of principal and interest (including OID) on an Exchange Note paid
to the beneficial owner by a United States office of a custodian, nominee or
agent, or the payment by the United States office of a broker of the proceeds
of sale of an Exchange Note will be subject to both backup withholding and
information reporting
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unless the beneficial owner provides the statement referred to in (a)(iv) above
and the payor does not have actual knowledge that the beneficial owner is a
United States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
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PLAN OF DISTRIBUTION
Based on positions taken by the Staff of the Commission set forth in no-
action letters issued to Exxon Capital Holding Corp. and Morgan Stanley & Co.
Inc., among others, we believe that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder
which is (i) an "affiliate" of our Company within the meaning of Rule 405 under
the Securities Act, (ii) a broker-dealer who acquired Notes directly from our
Company, or (iii) broker-dealers who acquired Notes as a result of market-
making or other trading activities) without compliance with the registration
and prospectus delivery provisions for the Securities Act of 1933 provided that
such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, and
have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes, provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the Staff of the Commission has taken the
position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to transactions involving an exchange of
securities such as the exchange pursuant to the Exchange Offer (other than a
resale of an unsold allotment from the sale of the Outstanding Notes to the
initial purchasers thereof) with the prospectus contained in the registration
statement of which this prospectus is a part. Pursuant to the registration
rights agreement entered into in connection with the Unit Offering, we have
agreed to permit Participating Broker-Dealers and other persons, if any,
subject to similar prospectus delivery requirements to use this prospectus in
connection with the resale of such Exchange Notes. We have agreed that, for a
period of 180 days after the Exchange Offer has been consummated, we will make
this prospectus, and any amendment or supplement to this prospectus, available
to any broker-dealer that requests such documents in the Letter of Transmittal.
Each holder of Outstanding Notes who wishes to exchange its Outstanding Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations to us as set forth in "The Exchange Offer". In addition, each
holder who is a broker-dealer and who receives Exchange Notes for its own
account in exchange for Outstanding Notes that were acquired by it as a result
of market-making activities or other trading activities, will be required to
acknowledge that it will deliver a prospectus in connection with any resale by
it of such Exchange Notes.
Holders who tender Outstanding Notes in the Exchange Offer with the intention
to participate in a distribution of the Exchange Notes may not rely upon the
Exxon Capital Holdings Corp., the Morgan Stanley & Co. Inc. or similar no-
action letters.
We will not receive any proceeds from any sale of Exchange Notes by broker-
dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the Exchange Offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Outstanding Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in
the registration rights agreement entered into in connection with the Unit
Offering.
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LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes will be passed upon
for Cybernet by Powell, Goldstein, Frazer & Murphy LLP, Washington, D.C.
Certain matters of German law with respect to the Exchange Notes will be passed
upon for Cybernet by Besner Kreifels Weber, Munich, Germany.
INDEPENDENT ACCOUNTANTS
Our consolidated financial statements at December 31, 1998, 1997 and 1996,
and for each of the years then ended and the financial statements of Open:Net
at December 31, 1997 and for the year then ended appearing elsewhere in this
prospectus have been audited by Schitag Ernst & Young, AG, independent
accountants.
The financial statements of Vianet at December 31, 1997 and 1998, and for
each of the three years in the period ended December 31, 1998 appearing in this
prospectus have been audited by Ernst & Young, Wirtschaftsprufungs-Und,
Steuerberatungsgesellschaft MBH, independent accountants.
The financial statements of Flashnet at December 31, 1998 and for the year
then ended appearing in this prospectus have been audited by Grant Thornton
S.p.A., independent accountants.
AVAILABLE INFORMATION
We have filed with the Commission a Registration Statement on Form S-4 under
the Securities Act of 1933 with respect to the Exchange Notes offered hereby.
This prospectus, which forms a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations
of the Commission. For further information with respect to our Company and the
Exchange Notes, reference is made to the Registration Statement. Statements
contained in this prospectus as to the contents of certain documents are not
necessarily complete, and, in each instance, reference is made to the copy of
the document filed as an exhibit to the Registration Statement, and each such
statement is qualified in its entirety by such reference.
Cybernet is subject to the informational requirements of the Exchange Act. In
accordance with those requirements, Cybernet is required to file reports, proxy
statements and other information with the Commission. Reports, proxy statements
and other information filed with the Commission may be inspected without charge
and copied at prescribed rates at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission located at Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661-2551 and Room 1300, 7 World Trade
Center, New York, New York 10048. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. In
addition, such reports, proxy statements and other information can be inspected
on the Commission's website at http://www.sec.gov. In addition, Cybernet
intends to furnish its stockholders with annual reports containing financial
statements audited by its independent certified public accountants.
If and so long as the Notes are listed on or admitted for trading on an
internationally recognized stock exchange and the rules of such exchange shall
so require, copies of the information described above will also be available in
such places and for such times as the rules of such stock exchange may require.
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LISTING AND GENERAL INFORMATION
1. Listing: Application will be made to list Exchange Notes on the Luxembourg
Stock Exchange. The legal notice relating to the issue of the Exchange Notes
and the Certificate of Incorporation of the Company will be registered prior
to the listing with the Registrar of the District Court in Luxembourg
(Greffier en Chef du Tribunal d'Arrondissement de et a Luxembourg), where
such documents are available for inspection and where copies thereof can be
obtained upon request. As long as the Exchange Notes are listed on the
Luxembourg Stock Exchange, an agent for making payments on, transfers and
conversions of the Exchange Notes will be maintained in Luxembourg.
2. Authorizations: The Company has obtained all necessary consents, approvals
and authorizations in connection with the issue of the Notes. The issue of
the Notes was authorized by resolutions of the Board of Directors of the
Company passed on May 26, 1999.
3. Material Change: Except as disclosed in this prospectus, there has been no
significant change in the financial or trading position of the Company and
its subsidiaries since June 30, 1999 and no material adverse change in the
financial position or prospects of the Company and its subsidiaries since
June 30, 1999.
4. Litigation: Neither the Company nor any of its subsidiaries is involved in
any litigation or arbitration proceedings which may have, or have had during
the 12 months preceding the date of this Exchange Offer, a material adverse
effect on the financial position of the Company and its subsidiaries, nor,
so far as any of them is aware, is any such proceeding pending or
threatened.
5. Auditors: The Company's consolidated balance sheets as of December 31, 1998,
1997 and 1996 and the related consolidated statements of loss and
comprehensive loss, cash flows and changes in stockholder's equity for each
of the three years then ended have been audited by Schitag Ernst & Young in
accordance with United States generally accepted auditing standards. Schitag
Ernst & Young have given and not withdrawn their written consent to the
issuer of this prospectus to the inclusion in it of their reports in the
form and context in which they are included.
6. Documents Available: Copies (and certified English translations where the
documents are not in English) of the following documents may be inspected at
the specified office of Kredietbank S.A. in Luxembourg for so long as the
Exchange Notes are listed on the Luxembourg Stock Exchange:
. Certificate of Incorporation of the Company;
. a copy of the reports of the independent accountants and the audited
consolidated financial statements of the Company and its
subsidiaries for the three years ended December 31, 1998;
. the purchase agreement relating to the Notes;
. the Senior Notes Indenture under which the Notes are issued (which
includes the form of the Global Note and Definitive Notes);
. the Collateral Agreement; and
. such other documents as the rules and regulations of such stock
exchange may require.
In addition, copies of the most recent consolidated financial statements of
the Company for the preceding financial year, and any quarterly interim
financial statements published by the Company, will be available at the
specification of the Kredietbank S.A. in Luxembourg for as long as the
Exchange Notes are listed on the Luxembourg Stock Exchange. The Company
does not prepare non-consolidated financial statements for public release.
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7. Clearing Systems: The Notes will be cleared, either directly or indirectly,
through The Depository Trust Company, Euroclear and/or Cedel Bank. Relevant
trading information is set forth below:
<TABLE>
<S> <C>
CUSIP for Outstanding Notes...................................... 232503AC7
ISIN for Outstanding Notes....................................... US232503AC64
CUSIP for Exchange Notes......................................... 232503AE2
ISIN for Exchange Notes.......................................... US232503AE21
</TABLE>
8. Accounts: The Company prepares annual consolidated balances sheets,
consolidated statements of loss and comprehensive loss, consolidated
statements of cash flows and consolidated statements of stockholders' equity
and quarterly consolidated balance sheets, consolidated statements of loss
and comprehensive loss and consolidated statements of cash flows.
9. Exchange Notes: Application will be made to list the Exchange Notes on the
Luxembourg Stock Exchange. The Exchange Notes will be accepted for clearance
through the accounts of the Euroclear Operator and Cedelbank and they will
have a new common code and a new common ISIN number, which will be
transmitted to the Luxembourg Stock Exchange. All documents prepared in
connection with the Exchange Offer will be available at the office of the
special agent in Luxembourg and all necessary actions and services in
respect of the Exchange Offer may be done at the office of the special agent
in Luxembourg. The special agent appointed for these purposes is Kredietbank
S.A. Luxembourgeoise, 43, Boulevard Royal, L-2955 Luxembourg.
All notices relating to the Exchange Offer will be published in accordance
with the notice provisions of the Senior Notes Indenture. See "Description
of the Exchange Notes--Notices." So long as the Exchange Notes are listed
on the Luxembourg Stock Exchange and the rules of such stock exchange shall
require, prior to the commencement of the Exchange Offer, notice of the
Exchange Offer will be given to the Luxembourg Stock Exchange and will be
published in a newspaper having a general circulation in Luxembourg (which
is expected to be the Luxemburger Wort). Such notice will, among other
things, provide details of the conditions to the Exchange Offer and the
commencement and expected completion dates of the Exchange Offer. So long
as the Exchange Notes are listed on the Luxembourg Stock Exchange and the
rules of such stock exchange shall require, notice of the results of the
Exchange Offer will be given to the Luxembourg Stock Exchange and will be
published in a newspaper having a general circulation in Luxembourg (which
is expected to be the Luxemburger Wort), in each cash, as promptly as
practicable following the completion of the Exchange Offer. Similar notice
will also be provided in connection with the payment of Liquidated Damages
and the declaration of the effective date of interest rates.
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GLOSSARY OF TERMS
Set forth below are definitions of some of the terms used in this prospectus.
Backbone..................... A centralized high-speed network that
interconnects smaller, independent networks.
Bandwidth.................... A measure of the amount of information which
can move through a communications medium in a
given amount of time; the capacity of a
telecommunications circuit/network to carry
voice, data and video information. Typically
measured in kb/s and Mb/s.
Caching...................... Temporary storage or replication of Web server
content at one or more locations throughout the
Internet to provide a quicker response to a
local browser request.
CGI.......................... Custom Gateway Interface.
Co-Location.................. Housing of a server owned and maintained by
another.
DS-3 or T-3.................. A data communications circuit capable of
transmitting data at 45 Mb/s. Equivalent to 28
T-1's of data capacity. Currently used only by
business/institutions and carriers for high-end
applications.
E-1.......................... The European counterpart to T1 which transmits
at 2.0448 Mb/s.
Electronic mail or e-mail.... An application that allows a user to send or
receive text messages to or from any other user
with an Internet address, commonly termed an e-
mail address.
Ethernet..................... A common method of networking computers in a
LAN. Ethernet will handle about 10 Mb/s and can
be used with almost any kind of computer.
Extranet..................... A company Website that is made available to
external customers or organizations for
electronic commerce.
FDDI......................... Fiber Distributed Data Interface. A standard
for transmitting data on fiber-optic cables at
a rate of 100 Mb/s.
Firewall..................... A gateway between two networks that buffers and
screens all information and prevents
unauthorized traffic from passing between such
networks.
Frame relay.................. A communications standard that is optimized for
efficient switching of variable-length data
packets.
Host......................... A computer with direct access to the Internet.
Internet..................... A global collection of interconnected computer
networks which use a specific communications
protocol.
Intranet..................... A TCP/IP based network and Website which is
securely isolated from the Internet and serves
the internal needs of a company or institution.
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IP or Internet Protocol...... Network protocols that allow computers with
different architectures and operating systems
software to communicate with other computers on
the Internet.
ISDN or Integrated Services
Digital Network.............. An information transfer standard for
transmitting digital voice and data over
telephone lines at speeds up to 128 Kb/s
ISPs or Internet Service
Providers.................... Companies formed to provide access to the
Internet to consumer and business customers via
local networks.
Kbps or Kilobits per
second....................... A transmission rate. One kilobit equals 1,024
bits of information.
LAN or Local Area Network.... A data communications network designed to
interconnect personal computers, workstations,
minicomputers, file servers and other
communications and computing devices within a
localized environment.
Leased Lines................. Telecommunications lines dedicated to a
particular customer along predetermined routes.
Mbps or Megabits per
second....................... A transmission rate. One megabit equals 1,024
kilobits.
MMDS......................... Microwave Multipoint Distribution Service.
Modem........................ A device for transmitting digital information
over an analog telephone line.
Network...................... A collection of distributed computers which
share data and information through inter-
connected lines of communication.
NOC or Network Operations
Center....................... Facility where we monitor and manage our
network.
Peering...................... The commercial practice under which nationwide
ISPs exchange each other's traffic, in most
cases without the payment of settlement
charges.
POPs or Points-of-Presence... An interlinked group of modems, routers and
other computer equipment, located in a
particular city or metropolitan area, that
allows a nearby subscriber to access the
Internet through a local telephone call or by
using a short-distance permanent data circuit.
Protocol..................... A formal description of message formats and the
rules two or more machines must follow in order
to communicate.
Router....................... A device that receives and transmits data
packets between segments in a network or
different networks.
Server....................... Software that allows a computer to offer a
service to another computer. Other computers
contact the server program by means of matching
client software. The term also refers to the
computer on which server software runs.
STM-1........................ A data communication circuit capable of
transmitting data at 155 Mb/s.
147
<PAGE>
VPN or Virtual Private
Network...................... A network capable of providing the tailored
services of a private network (i.e., low
latency, high throughput, security and
customization) while maintaining the benefits
of a public network (i.e., ubiquity and
economies of scale).
WAN or Wide Area Network..... A data communications network designed to
interconnect personal computers, workstations,
mini computers, file servers and other
communications and computing devices across a
broad geographic region.
Web or World Wide Web........ A network of computer servers that uses a
special communications protocol to link
different servers throughout the Internet and
permits communication of graphics, video and
sound.
Web-hosting/housing.......... A service in which websites are housed on third
party computers and maintained online using the
Internet.
Websites or Webpages......... A site located on the Web, written in the HTML
or SGML language.
148
<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 the Consolidated Financial Statements.......................... F- 7
Consolidated Balance Sheets December 31, 1998 and June 30, 1999
(unaudited)............................................................ F-21
Consolidated Statements of Loss and Comprehensive Loss six months ended
June 30, 1998 and 1999 (unaudited)..................................... F-22
Consolidated Statements of Cash Flows six months ended June 30, 1998 and
1999 (unaudited)....................................................... F-23
Notes to the Consolidated Unaudited Interim Financial Statements
(unaudited)............................................................ F-24
VIANET TELEKOMMUNIKATIONS AG
Independent Auditors' Report............................................ F-27
Balance Sheets December 31, 1998 and 1997............................... F-28
Statements of Operations and Retained Earnings years ended December 31,
1998, 1997 and 1996.................................................... F-29
Statements of Cash Flows years ended December 31, 1998, 1997 and 1996... F-30
Notes to the Financial Statements....................................... F-31
OPEN:NET NETZWERKDIENSTE GMBH
Independent Auditors' Report............................................ F-36
Balance Sheet Year Ended December 31, 1997.............................. F-37
Profit and Loss Statements year ended December 31, 1997 and eight months
ended August 31, 1998 (unaudited)...................................... F-38
Notes to the Financial Statements....................................... F-39
FLASHNET S.P.A.
Independent Auditors' Report............................................ F-42
Balance Sheet December 31, 1998......................................... F-43
Statement of Loss for the year ended December 31, 1998.................. F-44
Statement of Stockholders' Deficit year ended December 31, 1998......... F-45
Statement of Cash Flows year ended December 31, 1998.................... F-46
Notes to the Financial Statements....................................... F-47
Balance Sheets March 31, 1999 and 1998 (unaudited)...................... F-54
Statement of Loss three months ended March 31, 1999 and 1998
(unaudited)............................................................ F-55
Statement of Stockholders' Deficit three months ended March 31, 1999 and
1998 (unaudited)....................................................... F-56
Statement of Cash Flows three months ended March 31, 1999 and 1998
(unaudited)............................................................ F-57
Notes to the Financial Statements (unaudited)........................... F-58
</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. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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.
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
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
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............... 178,994 279,698 2,940,865
Depreciation and amortization.......... 21,263 115,899 879,978
---------- ----------- ------------
Total operating expenses........... 628,101 2,065,931 9,240,833
---------- ----------- ------------
Operating loss......................... (683,548) (2,283,697) (11,047,313)
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 earn-
ings 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 loss 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........... 28,049 287,095 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........................... (569,685) (1,432,432) (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................ (557,585) (2,464,312) (3,865,930)
Acquisition of businesses, net of cash
acquired................................ -- (269,316) (734,154)
---------- ---------- -----------
Net cash used in investing
activities........................... (1,532,912) (4,790,473) (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>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------ ------------------
Additional Accumulated Other Total
Subscription Paid-In Accumulated Comprehensive Stockholders'
Shares Amounts Shares Amount Receivable Capital Deficit Income (Loss) Equity
---------- ------- ---------- ------ ------------ ----------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
January 1,
1996............ 161,250 $ 161 6,360,000 $6,360 $ 57,995 $ (3,418) $ 4,952 $ 66,050
Issuance of
shares for
cash............ 4,998,750 4,999 2,007,904 2,012,903
Net loss......... (283,778) (283,778)
Currency
translation
adjustment...... (5,089) (5,089)
---------- ------- ---------- ------ --------- ----------- ----------- --------- -----------
Balance
December 31,
1996........... 5,160,000 $ 5,160 6,360,000 $6,360 -- $ 2,065,899 $ (287,196) $ (137) $ 1,790,086
Issuance of
shares in
reverse
acquisition.... 9,521,891 9,522 232,331 241,853
Issuance of
shares for
cash........... 1,400,000 1,400 (735,000) 8,804,027 8,070,427
Currency
translation
adjustment..... (210,211) (210,211)
Net loss........ (983,840) (983,840)
---------- ------- ---------- ------ --------- ----------- ----------- --------- -----------
Balance
December 31,
1997........... 14,681,891 $14,682 7,760,000 $7,760 $(735,000) $11,102,257 $(1,271,036) $(210,348) $ 8,908,315
Conversion of
preferred
stock.......... 1,400,000 1,400 (1,400,000) (1,400)
Stock dividend.. 21,775 22 391,928 (391,950)
Issuance of
shares for
Artwise
acquisition.... 72,620 72 1,052,919 1,052,991
Issuance of
shares for
cash........... 700,000 700 12,599,300 12,600,000
Payment of
subscription
receivable..... 715,790 715,790
Issuance of
shares for
cash........... 1,800,000 1,800 44,975,576 44,977,376
Issuance of
shares for
Open:Net
acquisition.... 58,852 59 1,677,223 1,677,282
Issuance of
shares for
Eclipse
acquisition.... 27,000 27 995,733 995,760
Currency
translation
adjustment..... 1,204,589 1,204,589
Net loss........ (4,772,690) (4,772,690)
---------- ------- ---------- ------ --------- ----------- ----------- --------- -----------
Balance
December 31,
1998........... 18,762,138 $18,762 6,360,000 $6,360 $ (19,210) $72,794,936 $(6,435,676) $ 994,241 $67,359,413
========== ======= ========== ====== ========= =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
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 September 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
F-7
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
F-8
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
F-9
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 Telekommunikations 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.
F-10
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 short-term investments
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>
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>
<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>
F-11
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
<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 established short-term unsecured
overdraft facilities under which the Company and its subsidiaries could borrow
up to DM 463,340 ($276,952). 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 342,247 ($204,571) of the overdraft facility was used and DM 121,093
($72,381) was available.
F-12
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 2005..................................... -- 41,626
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. Shareholders 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. 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.
F-13
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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
F-14
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 Incentive Plan
In 1998 the Company adopted a stock incentive plan ("Stock Incentive Plan")
which provides for the grant of a variety of stock award instruments to key
employees and members of the Board of Directors.
The Company has reserved 2,000,000 shares of common stock for issuances under
the Stock Incentive 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 pursuant to the Stock
Incentive Plan. All options granted have 10 year terms and vest over three
years. All options were still outstanding at December 31, 1998. None of the
options outstanding at December 31, 1998 were exercisable.
The Company has elected to follow APB 25 and related interpretations in
accounting for the stock options granted under the Stock Incentive 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. 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
F-15
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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)
Others................................. -- (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>
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
Net operating losses...................... $692,694 $3,454,606 $11,695,379
-------- ---------- -----------
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.
F-16
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 share -- weighted average shares
outstanding.......................... 2,465,782 8,342,297 16,012,653
========== ========== ===========
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.
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.
F-17
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
======== ========== ===========
</TABLE>
F-18
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1997 1998
---------- ----------- ------------
<S> <C> <C> <C>
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>
The Company's property, plant and equipment by geographic location and
capital expenditures by geographic area are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Long lived assets:
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,
------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Capital Expenditures:
Germany..................................... $552,104 $1,707,843 $5,097,077
US.......................................... -- -- --
Other....................................... -- -- 936,882
-------- ---------- ----------
Total....................................... $552,104 $1,707,843 $6,033,959
======== ========== ==========
</TABLE>
F-19
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 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-20
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
-----------
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $42,876 $14,974
Short-term investments............................... 112 482
Accounts receivable, net of allowance for doubtful
accounts of $810 and $361 for June 30, 1999 and
December 31, 1998 respectively...................... 3,249 7,436
Other receivables.................................... 1,793 1,459
Prepaid expenses and other assets.................... 423 1,116
------- -------
Total current assets............................... 48,453 25,467
Property and equipment, net.......................... 7,970 14,429
Product development costs, net....................... 5,743 4,992
Goodwill, net........................................ 6,505 35,805
Deferred income taxes................................ 8,166 12,251
Other assets......................................... 2,608 3,842
------- -------
TOTAL ASSETS....................................... $79,445 $96,786
======= =======
LIABILITIES AND SHAREHOLDERS EQUITY
LIABILITIES
Overdrafts and short-term borrowings................. $ 287 $23,018
Trade accounts payable............................... 3,346 8,105
Other accrued liabilities............................ 1,073 3,622
Deferred purchase obligations........................ 4,483 2
Current portion long term debt and capital lease
obligations......................................... 925 1,173
Accrued personnel costs.............................. 589 1,109
------- -------
Total current liabilities............................ 10,703 37,029
Long-term debt....................................... 67 104
Capital lease obligations............................ 1,316 1,607
Minority interest.................................... -- --
SHAREHOLDERS EQUITY
Common stock $.001 par value, 50,000,000 shares
authorized, 20,729,988 shares issued and outstanding
at June 30, 1999 and 18,762,138 issued and
outstanding at December 31, 1998.................... 19 21
Preferred stock $.001 par value, 50,000,000 shares
authorized, 4,793,440 shares issued and outstanding
at June 30, 1999 and 6,360,000 issued and
outstanding at December 31, 1998.................... 6 5
Subscription receivable.............................. (19) --
Additional paid in capital........................... 72,795 79,335
Accumulated deficit.................................. (6,436) (14,685)
Other Comprehensive income (loss).................... 994 (6,630)
------- -------
Total shareholders equity.......................... 67,359 58,046
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY.......... $79,445 $96,786
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-21
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
1998 1999
------------ ------------
(in thousands,
except per share data)
--------------------------
<S> <C> <C>
Revenue
Internet Projects................................. $ 1,863 $ 2,459
Network Services.................................. 1,489 5,994
------------ ------------
Total revenues.................................. 3,352 8,453
Cost of revenues:
Internet Projects................................. 1,438 2,056
Network Services.................................. 1,747 6,534
Depreciation and amortization..................... 332 1,545
------------
Total cost of revenues.......................... 3,517 10,135
------------ ------------
Gross loss........................................ (165) (1,682)
General and administrative expenses............... 655 3,770
Marketing expenses................................ 1,608 5,147
Research and development.......................... 821 2,146
Depreciation and amortization..................... 272 1,228
------------ ------------
Total operating expenses........................ 3,356 12,291
Interest expense.................................. 106 64
Interest income................................... 12 383
------------ ------------
Loss before taxes and minority interest........... (3,615) (13,654)
Income tax benefit................................ 2,008 5,302
------------ ------------
Net loss before minority interest................. (1,607) (8,352)
Minority interest................................. -- 103
Net loss.......................................... (1,607) (8,249)
Other comprehensive loss:
Foreign currency translation adjustments.......... 12 (7,624)
------------ ------------
Comprehensive loss................................ (1,595) (15,873)
------------ ------------
Basic and diluted loss per share.................. $ (0.11) $ (0.44)
============ ============
Number of shares used to compute earnings per
share............................................ 14,765,777 18,917,582
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-22
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months
ended June 30,
------------------
1998 1999
-------- --------
(in thousands)
------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (1,607) $ (8,249)
Adjustments to reconcile net income to net cash provided
by operations:
Deferred tax credit...................................... (1,101) (5,309)
Depreciation and amortization............................ 338 2,772
Provision for losses on accounts receivable.............. 25 651
Changes in operating assets and liabilities:
Trade accounts receivable................................ (462) (1,759)
Other receivables........................................ (310) 139
Prepaid expenses and other assets........................ (751) (1,943)
Trade accounts payable................................... 1,134 1,757
Other accrued expenses and liabilities................... (547) 517
Accrued personnel costs.................................. 148 80
-------- --------
Total changes in operating assets and liabilities....... (788) (1,209)
-------- --------
Net cash used in operating activities.................... (3,133) (11,344)
Cash Flows from Investing Activities:
Purchase of short term investments........................ -- (403)
Proceeds from sale of short term investments.............. 395 --
Purchase of property and equipment........................ (1,221) (6,587)
Product development costs................................. (626) (686)
Acquisition of businesses, net of cash acquired........... -- (24,192)
Payment of deferred purchase obligations.................. -- (4,172)
-------- --------
Net cash used in investing activities.................... (1,452) (36,040)
Cash Flows from Financing Activities:
Proceeds from issue of common stock, net.................. 724 --
Proceeds from borrowings.................................. 1,975 23,805
-------- --------
Repayment of borrowings
Net cash provided by financing activities................ 2,699 23,805
-------- --------
Net (decrease) increase in cash and cash equivalents...... (1,886) (23,579)
Cash and cash equivalents at beginning of period.......... 1,239 42,876
Translation adjustments................................... 788 (4,323)
-------- --------
Cash and cash equivalents at end of period................ $ 141 $ 14,974
======== ========
Supplemental disclosure of non-cash investing and
financing activities:
Acquisitions (Note 5):
Fair value of assets acquired............................ -- $ 34,344
Less:
Cash Acquired........................................... -- 73
Cash paid............................................... -- 22,850
Stock issued............................................ -- 4,626
-------- --------
Liabilities assumed....................................... -- $ 6,795
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-23
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1.Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of financial position
and results of operations have been included. Operating results for the six
month period end June 30, 1999 are not necessarily indicative of results to be
expected for the year ended December 31, 1999. For further information, refer
to the Consolidated Financial Statements and notes thereto included in the
Company's annual report of Form 10-K for the year ended December 31, 1998.
2.Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
June 30
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Numerator:
Net loss-numerator for basic and diluted loss per
share (U.S. dollars in thousands).................... $ 1,607 $ 8,249
Denominator:
Denominator for basic and diluted loss per share --
weighted average shares outstanding.................. 14,765,777 18,917,582
Basic and diluted loss per share...................... $ (0.11) $ (0.44)
</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.
3.Segment information
The Company evaluates performance and allocates resources based on the
operating profit of its subsidiaries. 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 inter-company
sales between its subsidiaries. Information concerning the Company's geographic
locations is summarized as follows:
<TABLE>
<CAPTION>
June 30
----------------
1998 1999
------- --------
(in thousands)
----------------
<S> <C> <C>
Revenues
Germany....................................................... $ 2,908 $ 5,455
US............................................................ -- --
Other......................................................... 444 2,998
------- --------
Total......................................................... $ 3,352 $ 8,453
Cost of Revenues
Germany....................................................... $ 3,168 $ 8,159
US............................................................ -- 9
Other......................................................... 348 1,967
------- --------
Total......................................................... $ 3,516 $ 10,135
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
June 30
------------------
1998 1999
-------- --------
(in thousands)
------------------
<S> <C> <C>
General and Admin Exp.
Germany................................................... $ 565 $ 2,605
US........................................................ 53 570
Other..................................................... 37 595
-------- --------
Total..................................................... $ 655 $ 3,770
Marketing Expenses
Germany................................................... 1,559 3,851
US........................................................ -- 243
Other..................................................... 49 1,053
-------- --------
Total..................................................... 1,608 5,147
Research & Development
Germany................................................... 788 1,622
US........................................................ -- --
Other..................................................... 33 524
-------- --------
Total..................................................... 821 2,146
Depreciation & Amortization
Germany................................................... 272 933
US........................................................ -- 138
Other..................................................... -- 157
-------- --------
Total..................................................... 272 1,228
Interest Expense
Germany................................................... 97 16
US........................................................ -- 9
Other..................................................... 9 39
-------- --------
Total..................................................... 106 64
Interest Income
Germany................................................... (12) (10)
US........................................................ -- (373)
Other..................................................... -- --
-------- --------
Total..................................................... (12) (383)
Loss before Taxes
Germany................................................... 3,532 11,723
US........................................................ 53 597
Other..................................................... 27 1,334
-------- --------
Total..................................................... 3,612 13,654
Income Tax Benefit
Germany................................................... (2,007) (5,305)
US........................................................ -- --
Other..................................................... -- 3
-------- --------
Total..................................................... $ (2,007) $ (5,302)
</TABLE>
F-25
<PAGE>
4.Income Taxes
In March 1999 the German government passed new tax legislation which reduced
the corporate income tax rate from 45% to 40%. Accordingly, the Company's
deferred tax assets and liabilities related to Germany were re-measured using
40% in the first quarter of 1999. The impact of re-measuring the deferred tax
assets and liabilities using the new rate was recorded as a reduction in the
income tax benefit of approximately $550,000 for the quarter ended March 31,
1999.
5.Business Acquisitions
Effective April 13, 1999, the Company acquired 51% of the outstanding shares
of Sunweb Internet Services SIS AG ("Sunweb") for a total consideration of DM
2,865,550 ($1,513,201). DM 1,806,957 ($954,193) of the purchase price was paid
in cash with the remainder settled in exchange for the issuance of 25,000
shares of the 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 expire on December 31, 2001. The acquisition has been accounted for
using the purchase method of accounting and as such the accompanying financial
statements reflect Sunweb's results of operations for the period April 13, 1999
through June 30, 1999. Goodwill recorded in connection with the acquisition of
Sunweb, amounting to DM 2,674,512 ($1,412,320), is being amortized over 10
years.
Effective June 25, 1999, the Company acquired 100% of the outstanding shares
of Flashnet S.p.A. ("Flashnet") for a total consideration of DM 49,166,828
($25,963,367). DM 41,464,040 ($21,895,781) of the purchase price was paid in
cash with the remainder settled in exchange for the issuance of 301,290 shares
of the common stock of the Company. The acquisition has been accounted for
using the purchase method of accounting. Flashnet's results of operations
subsequent to June 25, 1999 are not included in the accompanying financial
statements due to immateriality. Goodwill recorded in connection with the
acquisition of Flashnet, amounting to DM 52,544,954 ($27,747,243), is being
amortized over 10 years.
The following unaudited pro forma consolidated results of operations for the
six months ended June 30, 1998 and 1999 assume the acquisitions of Open:Net,
Vianet and Flashnet had occurred as of January 1, 1998. The unaudited pro forma
consolidated results of operations do not include the results of operations of
Sunweb due to the relative insignificance of the amounts involved.
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenue............................................ $ 7,036,873 $ 12,760,400
Net loss........................................... 2,893,699 10,114,041
Basic and diluted loss per share................... $ (0.19) $ (0.49)
</TABLE>
6.Stockholders Equity
In June 1999, holders of 276,560 shares of Series A Preferred Stock converted
their shares into 276,560 shares of the Company's Common Stock. Also in June
1999, holders of 1,290,000 shares of Series B Preferred Stock converted their
shares into 1,290,000 shares of the Company's Common Stock.
7.Subsequent events
On July 1, 1999, the Company sold 150,000 units consisting of 14.0% Senior
Notes due 2009 and warrants to purchase 4,534,604 shares of Common Stock. The
net proceeds of the unit offering were approximately $144 million.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholder
VIANET Telekommunikations AG
We have audited the accompanying balance sheets of VIANET Telekommunikations
AG as of December 31, 1996, 1997 and 1998 and the related statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial position of VIANET Telekommunikations AG
as of December 31, 1996, 1997 and 1998 and the results of their operations and
their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
By Ernst & Young
Wirtschaftsprutungs-und
Steuerberatungs gesellschaft mbH
(Gerd Haberfehlner)
(Edith Schmit)
February 12, 1999
F-27
<PAGE>
VIANET TELEKOMMUNIKATIONS AG
BALANCE SHEET
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1996 1997 1998
--------- ---------- ----------
(all amounts in ATS)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................. 655,174 100,025 1,524,978
Recoverable taxes and other receivables
(Note 2)................................. 130,747 126,087 45,184
Trade accounts receivable (Note 3)........ 2,943,991 5,573,461 7,927,150
Inventories (Note 4)...................... 109,099 37,404 111,111
Prepaid expenses (Note 5)................. 135,770 246,373 593,997
--------- ---------- ----------
Total current assets.................... 3,974,781 6,083,350 10,202,420
Deposits and Other Assets................... 170,000 241,846 407,300
Fixed Assets (Note 6)
Leasehold improvements.................... 219,220 219,220 383,998
Office furniture and equipment (Note 15).. 2,745,313 6,470,090 12,079,314
--------- ---------- ----------
2,964,533 6,689,310 12,463,311
Accumulated depreciation.................. (669,029) (1,952,565) (3,787,592)
--------- ---------- ----------
2,295,504 4,736,745 8,675,719
Deferred tax asset (Note 12)................ 18,899 4,739
--------- ---------- ----------
TOTAL ASSETS................................ 6,459,184 11,061,941 19,290,177
========= ========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Accounts payable.......................... 3,103,262 5,911,889 7,075,048
Current portion of obligations under
capital leases (Note 15)................. 976,858
Overdraft (Note 7)........................ 634,636 794,768
Accrued expenses (Note 8)................. 938,000 1,906,500 2,120,100
Corporate tax (Note 12)................... 7,500 139,200
Other payables............................ 1,069,554 1,015,162 1,744,845
Deferred income (Note 9).................. 841,983 953,178 4,747,993
--------- ---------- ----------
Total Current Liabilities............... 5,960,299 10,560,565 17,459,612
Deferred tax liability (Note 12)............ 26,024
Obligations under capital lease (Note 15)... 1,944,448
Accrued employee benefits (Note 10)......... 25,000 61,000 322,000
--------- ---------- ----------
TOTAL LIABILITIES........................... 5,985,299 10,647.589 19,726,060
--------- ---------- ----------
Shareholders Equity (Deficit) (Note 11)
Share capital............................. 250,000 250,000 750,000
Retained earnings (Accumulated deficit)... 223,885 164,352 (1,185,883)
--------- ---------- ----------
473,885 414,352 (435,883)
--------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY... 6,459,184 11,061,941 19,290,177
========= ========== ==========
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE>
VIANET TELEKOMMUNIKATIONS AG
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
(all amounts in ATS)
<S> <C> <C> <C>
Total revenues............................ 16,174,241 27,390,233 37,617,683
Costs and Expenses
Costs of products sold.................. 8,588,569 12,403,754 17,051,503
Research and development................ 0 0 1,282,625
General and administrative expenses..... 7,513,498 14,787,656 20,558,892
---------- ---------- ----------
16,102,067 27,191,410 38,893,020
---------- ---------- ----------
Operating profit (loss)................... 77,174 198,823 (1,275,337)
Interest income........................... 23,389 20,972 8,966
Interest expense.......................... (3,726) (86,212) (88,803)
---------- ---------- ----------
19,663 (65,240) (79,837)
---------- ---------- ----------
Income (loss) before income taxes......... 91,837 133,583 (1,355,175)
Provision for income taxes (Note 12)...... 3,899 (193,116) 4,940
---------- ---------- ----------
NET INCOME (LOSS)......................... 95,736 (59,533) (1,350,235)
Retained earnings, beginning.............. 128,149 223,885 164,352
---------- ---------- ----------
Retained earnings (Accumulated deficit),
ending................................... 223,885 164,352 (1,185,883)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-29
<PAGE>
VIANET TELEKOMMUNIKATIONS AG
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
(all amounts in ATS)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)......................... 95,736 (59,533) (1,350,235)
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation............................. 499,165 1,283,536 2,060,230
Deferred taxes........................... (18,899) 44,923 (30,763)
Change in accounts receivable,
recoverable taxes and other
receivables............................. (145,264) (2,624,810) (2,272,786)
Change in deposits and other assets...... -- (71,846) (165,454)
Change in inventories.................... 34,781 71,695 (73,707)
Change in prepaid expenses............... (12,004) (110,603) (347,624)
Change in accounts payable, accrued
expenses and other current liabilities.. 1,624,620 4,001,630 6,023,057
---------- ---------- ----------
Net cash provided by operating
activities............................ 2,078,135 2,534,992 3,842,718
Investing Activities
Expenditures for property, plant and
equipment............................... (2,059,575) (3,724,777) (3,077,897)
---------- ---------- ----------
Net cash (used in) investing
activities............................ (2,059,575) (3,724,777) (3,077,897)
Financing Activities
Increase share capital................... -- -- 500,000
Change in overdraft...................... -- 634,636 160,132
---------- ---------- ----------
-- 634,636 660,132
(Decrease) Increase in cash and cash
equivalents............................... 18,560 (555,149) 1,424,953
Cash and cash equivalents at beginning of
year...................................... 636,614 655,174 100,025
---------- ---------- ----------
Cash and Cash Equivalents at End of Year... 655,174 100,025 1,524,978
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-30
<PAGE>
VIANET TELEKOMMUNIKATIONS AG
NOTES TO THE FINANCIAL STATEMENTS
As of December 31, 1998
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
Company maintains its financial records in accordance with the Austrian
Commercial Code, which represents generally accepted accounting principles in
Austria ("Austrian GAAP"). Generally, accepted accounting principles in Austria
vary in certain significant respects from U.S. GAAP. Accordingly, the Company
has recorded certain adjustments in order that these financial statements be in
accordance with U.S. GAAP.
Business
VIANET EDV Dienstleistungs Gesellschaft mbH, an Austrian limited liability
company, was established in 1994. As of September 30, 1998 VIANET EDV
Dienstleistungs Gesellschaft mbH was legally transformed into VIANET
Telekommunikations AG, an Austrian joint-stock company ("the Company"). The
share capital of the Company was increased to ATS 1,000,000, of which ATS
750,000 has been paid in. The Company provides Internet services and
connections.
Cash & Cash Equivalents
Highly-liquid investments, with an original maturity of three months or less
from the date of purchase, are classified as cash equivalents.
Inventories
Inventories are valued at the lower of cost or market, with cost determined
on an actual basis.
Property, Plant and Equipment
The Company records fixed assets at cost less accumulated depreciation.
Depreciation, which begins when assets are placed in service, is calculated on
a straight-line basis over the estimated service lives.
Revenue Recognition
The Company's revenues consist of the basic fee that is paid three months in
advance and current fees which are invoiced after the relevant period. Prepaid
amounts are deferred under deferred income and are released into revenue over
the period of three months. Current fees are recognized as income immediately.
Fair Value of Financial Instruments
The carrying value of financial instruments such as cash, accounts receivable
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.
Estimates
The preparation of the 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
disclosures 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.
F-31
<PAGE>
VIANET TELEKOMMUNIKATIONS AG
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 2. Recoverable Taxes and Other Receivables
Recoverable taxes and other receivables consist of (in ATS):
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Capital gains tax receivable.............. 41,150 8,646 --
Value added tax........................... 26,998 38,310 29,860
Employee loans............................ 40,000 40,000 14,861
Other..................................... 22,599 39,131 463
--------- ---------- ----------
130,747 126,087 45,184
========= ========== ==========
Note 3. Trade Accounts Receivable
Total amount of accounts receivable is as follows (in ATS):
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Trade accounts receivable--domestic....... 3,542,557 7,419,133 10,360,528
Provision for bad debts................... (598,566) (1,845,672) (2,433,378)
--------- ---------- ----------
2,943,991 5,573,461 7,927,150
========= ========== ==========
</TABLE>
Provisions for bad debts were made for accounts receivable on a specific risk
of collection.
Note 4. Inventory
Inventory consists of hardware devices which are sold to customers. At
December 31, 1997 and 1998, there was no need to record a provision for
obsolete goods.
Note 5. Prepaid Expenses
Prepaid expenses consist principally of prepaid telecommunication fees,
licenses and rent expenses for a trade fair site.
Note 6. Fixed Assets
The range of estimated useful lives for different asset categories are as
follows:
<TABLE>
<S> <C>
Leasehold investments.............. 10 years
Hardware equipment................. 4-8 years
Office equipment................... 4-8 years
Intangible assets.................. 4-7 years
</TABLE>
In the year of acquisition depreciation is provided for a full year basis
when acquisition is in the first half of the year or with a half year rate when
acquisition is in the second half of the year.
Intangible assets relate to EDP software and amount to ATS 36.232,00.
Note 7. Overdraft
Overdrafts represent temporary overdrafts of bank balances. The overdrafts
are not subject to formal agreements and at December 31, 1998 and 1997 carried
interest rates of 7.5% and 14%, respectively.
F-32
<PAGE>
VIANET TELEKOMMUNIKATIONS AG
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 8. Accrued Expenses
Accrued expenses consist of the following (in ATS):
<TABLE>
<CAPTION>
1996 1997 1998
------- --------- ---------
<S> <C> <C> <C>
Unused holidays................................. 111,300 187,600 363,300
Telecommunication fees.......................... 469,000 435,500 --
Professional fees............................... 137,700 629,000 622,000
Lawsuits........................................ -- -- 200,000
Warranties...................................... -- 210,000 210,000
Payroll taxes................................... -- 224,400 419,500
Services not yet invoiced and other accruals.... 230,000 230,000 305,300
------- --------- ---------
948,000 1,906,500 2,120,100
======= ========= =========
</TABLE>
Note 9. Deferred Income
The Company is an Internet provider and concludes contracts with various
private and business customers. Amounts on invoices consist of two parts: the
basic fee which is required to be paid three months in advance and current fees
which are invoiced on a current basis. Prepaid amounts are deferred under
deferred income.
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Deferred revenue................................... 841,983 953,178 4,747,993
</TABLE>
Note 10. Accrued Employee Benefits
According to Austrian labor law, employees are entitled to receive a
termination payment in case of termination of the employment contract by the
employer or upon retirement. The calculation of the amount due depends on the
service time and compensation of the employee. The amount ranges from two
months compensation for three months of services to 12 months compensation for
services of 25 years or longer.
The Company has recorded a provision for termination payments amounting to
ATS 61,000 and ATS 322,000 at December 31, 1997 and 1998, respectively. The
provision was calculated according to Austrian Commercial Code prescribing
application of a discounting method (discount rate 6%, retirement age 55/60 for
women/men).
Note 11. Shareholders Equity
The Company is a joint-stock company under Austrian law.
As of December 31, 1998 the Company's common stock of ATS 1,000,000 has been
paid up to an amount of ATS 750,000.
Dividends may only be declared and paid from the accumulated retained
earnings (after deduction of certain reserves) shown in the Company's annual
Austrian statutory unconsolidated accounts. Such amounts differ from the total
of retained earnings as shown in the accompanying financial statements in
accordance with U.S. GAAP. As of December 31, 1998, the Company's Austrian
statutory unconsolidated accounts reflected no accumulated earnings available
for distribution, and accordingly, the Company's ability to pay dividends in
the future will depend on the future earnings of the Company.
F-33
<PAGE>
VIANET TELEKOMMUNIKATIONS AG
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 12. Provision for Income Taxes
The components of the provisions for income taxes are as follows (in ATS):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Current.......................................... 15,000 148,193 25,823
Deferred......................................... (18,899) 44,923 (30,763)
------- ------- --------
Income tax (benefit)............................. (3,899) 193,116 (4,940)
======= ======= ========
The components of the Company's deferred tax assets and liabilities are as
follows:
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Deferred tax assets
Net operating loss............................. 55,283 -- --
Accrued employee benefits...................... 8,500 20,740 109,480
------- ------- --------
63,783 20,740 109,480
======= ======= ========
Deferred tax liability
Depreciation................................... 44,899 46,764 104,741
------- ------- --------
Net deferred tax asset (liability)............... 18,899 (26,024) 4,739
======= ======= ========
A reconciliation of income taxes using the Austrian statutory federal income
tax rate of 34% to actual income taxes provided is as follows:
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Income tax at statutory rate..................... 31,225 45,418 (457,319)
Permanent differences............................ (31,438) 166,409 351,248
Other............................................ (3,686) (18,711) 101,131
------- ------- --------
(3,899) 193,116 (4,940)
======= ======= ========
</TABLE>
Permanent differences mainly consist of non-deductible entertainment costs
and non-deductible car costs.
Note 13. Commitments
The Company leases certain equipment under operating leases. The commitment
to future minimum lease payments is:
<TABLE>
<S> <C>
1999............................. ATS 591,725
2000............................. ATS 75,798
</TABLE>
Rent expense for operating leases approximated ATS 868,402, ATS 747,484.56
and ATS 535,563.42 for the years ended December 31, 1998, 1997 and 1996,
respectively.
F-34
<PAGE>
VIANET TELEKOMMUNIKATIONS AG
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 14. Contingencies
TUV Technischer Uberwachungsdienst Osterreich (TUV) filed a lawsuit against
the Company on December 1, 1997. TUV claimed ATS 210,000 for technical
malfunction of Cisco Routers which were installed and programmed by the
Company. TUV claims that the malfunction resulted in substantially increased
telephone charges. The Company has been advised by its outside counsel that TUV
could claim up to ATS 1,535,000. The company believes that the lawsuit can be
settled for a maximum amount of ATS 250,000 from which an amount of ATS 210,000
has been accrued. During the financial year 1998 no changes occurred in this
matter.
Note 15. Finance Lease
The Company has entered into a capital lease arrangement for the financing of
certain computer equipment. Future minimum lease payments are as follows (in
ATS):
<TABLE>
<S> <C>
1999........................................................... ATS 1,120,524
2000........................................................... ATS 1,120,524
2001........................................................... ATS 933,770
-------------
ATS 3,174,818
Less amount representing interest.............................. ATS 253,513
-------------
Present value of future minimum lease payments................. ATS 2,921,305
=============
Thereof noncurrent obligations................................. ATS 1,944,448
=============
</TABLE>
The net book value of computer equipment under capital lease included in
fixed assets at December 31, 1998 was ATS 2,917,327.
Note 16. Change of Ownership
Effective December 28, 1998, 100% of the Company's outstanding share capital
was acquired by Cybernet Internet Services International, Inc.
F-35
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Management and Shareholders
of OPEN:NET Netzwerkdienste GmbH, Ulm
We have audited the accompanying balance sheet of OPEN:NET Netzwerkdienste
GmbH as of December 31, 1997 and the related profit and loss statement for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Germany and 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 statements 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 financial position of OPEN:NET Netzwerkdienste GmbH
at December 31, 1997 and the results of operations for the year then ended, in
conformity with accounting principles generally accepted in Germany.
Accounting principles generally accepted in Germany vary in certain
significant respects from accounting principles generally accepted in the
United States of America to the extent summarized on page F-35-36 of the
financial statements.
/s/ Schitag Ernst & Young
Deutsche Allgemeine Treuhand AG
Wirtschaftsprufungsgesellschaft
Munich, Germany
November 10, 1998
F-36
<PAGE>
OPEN:NET NETZWERKDIENSTE GmbH, Ulm
BALANCE SHEET
As of December 31, 1997
<TABLE>
<CAPTION>
DM DM
---------- ----------
<S> <C> <C>
ASSETS
A. Fixed Assets
I. Intangible Assets
1. Franchises, trademarks, patents, licenses, and
similar rights and licenses to such rights..... 10,337.00
II. Tangible Assets
1. Other equipment, furniture and fixtures........ 130,152.10
B. Current Assets
I. Inventories
1. Work in process................................ 20,000.00
II. Receivables and Other Assets.
1. Trade accounts receivable due after one year DM
0.00........................................... 476,206.02
2. Other assets due after one year DM 0.00........ 15,942.01 492,198.53
----------
III. Checks, cash on hand, Federal Bank and postal
giro balances, and cash in banks............... 3,191.45
C. Prepaid Expenses and Deferred Charges............. 27,600.00
----------
683,429.08
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
A. Equity
I. Stated Capital................................. 50,000.00
II. Retained Earnings.............................. 5,958.98
B. Accruals
1. Tax accruals................................... 2,700.00
2. Other accruals................................. 38,400.00 41,100.00
----------
D. Liabilities
1. Liabilities due to banks due within one year:
DM 38,211.17................................... 182,181.78
2. Trade accounts payable due within one year: DM
116,257.44..................................... 116,257.44
3. Other liabilities due within one year: DM
287,930.88 thereof due to shareholders DM
136,718.71 thereof for taxes DM 66,352.50
thereof for social security DM 18,892.52....... 287,930.88 586,370.10
---------- ----------
683,429.08
==========
</TABLE>
F-37
<PAGE>
OPEN:NET NETZWERKDIENSTE GmbH, Ulm
PROFIT AND LOSS STATEMENTS
<TABLE>
<CAPTION>
(Unaudited)
Eight Months
Ended Year ended
August 31 December 31
1998 1997
DM DM
------------ ------------
<C> <S> <C> <C>
1. Sales........................................ 1,748,006.37 1,776,454.36
2. Increase/Decrease in work in process......... (20,000.00) 4,600.00
3. Other operating income....................... 9,516.80 35,519.77
------------ ------------
1,737,523.25 1,816,574.13
4. Cost of materials
a) Cost of raw materials, supplies,
production materials and purchased goods.. 613,652.18 628,704.51
5. Personnel expenses
a) Wages and salaries........................ 616,478.27 486,678.69
b) Social security, pension and other benefit
costs thereof for pensions DM 1,816.50 and
DM 9,909.25............................... 97,388.82 61,240.67
------------ ------------
713,867.09 547,919.36
6. Depreciation and amortization
a) on intangible assets and tangible fixed
assets.................................... 66,434.57 72,182.42
7. Other operating expenses..................... 772,177.36 535,918.88
8. Other interest and similar income............ 3.29 203.11
9. Interest and similar expenses................ 5,836.51 15,854.63
------------ ------------
10. Result from ordinary operations.............. (434,441.17) 16,197.44
11. Taxes on income.............................. 9,020.00 10,334.75
------------ ------------
12. Net income for the year...................... (443,461.17) 5,862.69
------------ ------------
13. Profit/Loss carry-forward from prior year.... 5,958.98 96.29
------------ ------------
14. Retained Earnings............................ (437,502.19) 5,958.98
============ ============
</TABLE>
F-38
<PAGE>
OPEN:NET NETZWERKDIENSTE GmbH, Ulm
NOTES TO THE FINANCIAL STATEMENTS
General
The annual financial statements of OPEN: NET Netzwerkdienste GmbH have been
prepared in accordance with Section 242 and subsequent sections and Section 264
and subsequent sections of the German Commercial Code (HGB) as well as in
accordance with the relevant provisions of the Limited Liability Companies Law
(GmbHG). The Company is subject to the requirements for small companies.
The financial statement classifications remained unchanged. The profit and
loss statement was prepared in accordance with the total costs method and in
accordance with Sec. 275 of the German Commercial Code.
The company makes full use of the footnote disclosures exemptions for
smallsized corporations set forth in Sec. 288 of the commercial trade code.
Accounting and Valuation Methods
The following accounting and valuation methods, which remained unchanged in
comparison to the previous year, were used for preparing the financial
statements.
Acquired intangible and tangible assets are capitalized at acquisition cost
and, if they have a limited life, are reduced by ordinary depreciation in
accordance with their useful lives. To the extent permissible under the tax
law, the declining-balance method, otherwise the straight-line method is used.
Low-value assets of a value up to DM 800.00 are fully depreciated in the year
of acquisition with their immediate disposal being assumed. Depreciation on
additions to tangible assets is generally recognized proportionally based on
the month of acquisition. For movable assets, the simplification rule as
defined in R 44 Para. 2 of the Income Tax Guideline (EStR) is used.
Receivables and other assets are stated at their nominal value. All
foreseeable valuation risks are provided for via adequate specific allowances.
General credit risk is provided for through a general allowance.
Other accruals take into account all contingent liabilities and anticipated
losses from pending transactions.
Liabilities are recorded at their repayment value.
Explanations to the Balance Sheet
Fixed Assets
The roll-forward of the individual fixed asset positions including current-
year depreciation is disclosed under "Roll-Forward of Fixed Assets".
F-39
<PAGE>
OPEN:NET NETZWERKDIENSTE GmbH, Ulm
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Fixed Assets Rollforward
<TABLE>
<CAPTION>
Acquisition and Production Cost Accumulated Depreciation Net Book V
------------------------------------------ ---------------------------------------- ----------
01.01.97 Additions Disposals 31.12.97 01.01.97 Additions Disposals 31.12.97 31.12.97
DM DM DM DM DM DM DM DM DM
---------- ---------- --------- ---------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Assets
I. Intangible Assets
I. Franchises,
trademarks,
patents, licenses
and similar rights
and licenses to
such rights........ 5,147.36 10,374.99 0.00 15,522.35 1,358.36 3,826.99 0.00 5,185.35 10,337.00
---------- ---------- ---- ---------- --------- --------- ---- ---------- ----------
II. Tangible Assets
3. Other equipment,
furniture and
fixtures............ 107,558.07 121,852.43 0.00 229,410.50 30,903.07 68,355.43 0.00 99,258.50 130,152.00
========== ========== ==== ========== ========= ========= ==== ========== ==========
112,705.43 132,227.42 0.00 244,932.85 32,261.43 72,182.42 0.00 104,443.85 140,489.00
========== ========== ==== ========== ========= ========= ==== ========== ==========
</TABLE>
Receivables and Other Assets
Other assets include corporate income tax refunds and VAT deductible in 1998.
Tax and other accruals
Tax accruals relate to trade tax on income for 1997.
Other accruals were set up for outstanding vacation and tax consultant fees.
Liabilities due to banks
Liabilities with remaining terms of more than 5 years amount to DM 26,760.00.
Other Liabilities
Other Liabilities include payables due to shareholders, VAT payables,
outstanding invoices and commissions.
The payables due to shareholders amount to DM 136,718.73.
Contingent Liabilities and Other Financial Obligations
There are no contingent liabilities. Other financial obligations amount to DM
52,425.00.
Explanations to the Profit and Loss Statement
Other Operating Expenses
Other expenses primarily contain expenses for premises and equipment, sales
commissions and external services.
F-40
<PAGE>
OPEN:NET NETZWERKDIENSTE GmbH, Ulm
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Other Disclosures
Management
General Managers during the financial year were:
Thomas Egner
Uwe Hagenmeier
Martin Heimann (until January 28, 1997)
Roland Lohmiller (until January 28, 1997)
Recommendation on the Appropriation of Retained Earnings
In agreement with the shareholders management recommends the carry forward
the retained earnings of DM 5,958.98 to the next financial year.
Significant Differences between Generally Accepted Accounting Principles in
Germany and the United States of America
Generally accepted accounting principles in Germany ("German GAAP") vary in
certain respects from generally accepted accounting principles in the United
States of America ("US GAAP"). The significant differences between the
accounting principles applied and those which would be applied under US GAAP
are summarized below:
Cash Flow Statements
Statements of cash flows are required to be presented under US GAAP. Cash
flow statements are not required by German GAAP.
Special accelerated depreciation
Special accelerated depreciation for tax purposes has been recorded in the
accounts and deducted from the book value of fixed assets. Under US GAAP,
accelerated depreciation would not be recorded in the financial statements.
Capitalization of Interest Cost
In application of FAS-51 and under the provisions of FAS-34 certain interest
costs, if material, have to be capitalized and added to the acquisition cost of
assets which require a certain time to get ready for their intended use. German
GAAP does not allow for the capitalization of interest related to constructed
assets.
Gunzburg, August 1998
The management
OPEN NET Netzwerkdienste GmbH
F-41
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Chairman of the Board
Flashnet S.p.A.
Via della Pisana 280/A
Rome, Italy
We have audited the accompanying balance sheet of Flashnet S.p.A. (an Italian
Company) as of December 31, 1998, and the related statements of loss,
stockholders' deficit, and cash flows for the year then ended, expressed in
Italian Lire. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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
statements presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flashnet S.p.A as of December
31, 1998, and the results of its operations and its cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America.
May 14, 1999
Grant Thornton S.p.A.
Rome, Italy
F-42
<PAGE>
FLASHNET S.p.A.
BALANCE SHEET
DECEMBER 31, 1998
(amounts in thousands of ITL)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets
Cash............................................................. 32,034
Accounts receivable, net of allowance for doubtful accounts of
50,000 (Note 2.c)............................................... 4,499,540
Inventories (Notes 2.d and 3).................................... 174,770
Deferred income taxes (Notes 2.i and 14)......................... 964,301
Prepaid cable rentals............................................ 530,294
Other current assets............................................. 301,985
----------
Total current assets........................................... 6,502,924
Property, plant, and equipment (Notes 2.e and 4)................... 3,647,901
Other assets (Note 5).............................................. 1,288,611
----------
Total Assets................................................... 11,439,436
==========
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities
Bank overdraft................................................... 716,437
Accounts payable................................................. 4,966,300
Current maturities of long-term debt............................. 365,995
Deferred income (Note 2.j)....................................... 2,774,708
Other current liabilities (Note 6)............................... 1,626,158
----------
Total current liabilities...................................... 10,449,598
Long-term liabilities
Obligations under capital leases (Note 7)........................ 628,885
Severance indemnities (Notes 2.g and 8).......................... 94,344
Bonds payable (Note 9)........................................... 800,000
----------
Total Liabilities.............................................. 11,972,827
----------
Stockholders' deficit..............................................
Common stock, par value ITL 1,000, authorized 2,297,142 shares,
issued, and outstanding 2,182,857 shares (Note 10).............. 2,182,857
Additional paid-in capital....................................... 983,891
Accumulated deficit (Notes 2.h and 11)........................... (3,700,139)
----------
Total Stockholders Deficit..................................... (533,391)
----------
Total Liabilities and Stockholders Deficit..................... 11,439,436
==========
</TABLE>
See accompanying notes.
F-43
<PAGE>
FLASHNET S.p.A.
STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1998
(amounts in thousands of ITL)
<TABLE>
<S> <C>
Net sales........................................................... 8,334,043
Cost of sales....................................................... (6,615,614)
----------
Gross profit........................................................ 1,718,429
Operating expenses.................................................. (4,562,098)
----------
Loss from operations................................................ (2,843,669)
Other income (expense)
Interest expense, net............................................. (369,914)
Penalties and interest on late payment of payroll taxes........... (358,780)
Rent income....................................................... 42,000
Others............................................................ 149,691
----------
Total other income (expense).................................... (537,003)
----------
Loss before income taxes............................................ (3,380,672)
Income taxes (Notes 2.i and 14)..................................... 1,015,169
----------
Net loss............................................................ (2,365,503)
==========
</TABLE>
See accompanying notes.
F-44
<PAGE>
FLASHNET S.p.A.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
(amounts in thousands of ITL)
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated
Total stock capital deficit
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Beginning balance............... (434,636) 900,000 (1,334,636)
Sale of stock................... 2,200,000 282,857 1,917,143
Stock split..................... 1,000,000 (1,000,000)
Shareholders contribution of
additional paid-in capital..... 66,748 66,748
Net loss for the period......... (2,365,503) (2,365,503)
---------- --------- ---------- ----------
Ending balance.................. (533,391) 2,182,857 983,891 (3,700,139)
========== ========= ========== ==========
</TABLE>
See accompanying notes.
F-45
<PAGE>
FLASHNET S.p.A.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(amounts in thousands of ITL)
<TABLE>
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................... (2,365,503)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.............................. 656,685
Change in assets and liabilities
Increase in accounts receivable........................... (2,320,596)
Decrease in inventories................................... 24,663
Increase in deferred tax asset--current................... (388,590)
Increase in deferred tax asset--noncurrent................ (728,197)
Increase in other current assets.......................... (201,760)
Increase in accounts payable.............................. 2,237,870
Increase in deferred income............................... 1,379,045
Increase in other current liabilities..................... 885,468
Increase in severance indemnities, net.................... 62,313
----------
Net cash used in operating activities.................... (758,602)
----------
Cash flows from investing activities
Purchase of property, plant, and equipment................. (1,487,740)
Payment to purchase the assets of Venezia Net Srl, net of
cash acquired............................................. (85,500)
Increase in other assets................................... (16,152)
----------
Net cash used in investing activities.................... (1,589,392)
----------
Cash flows from financing activities
Decrease in bank overdraft................................. (338,985)
Proceeds from sale of common stock......................... 2,200,000
Proceeds from issuance of bonds............................ 800,000
Proceeds from contribution of additional paid-in capital... 66,748
Principal payments under capital lease obligation.......... (366,041)
----------
Net cash provided by financing activities................ 2,361,722
Net change in cash and cash equivalents...................... 13,728
Cash and cash equivalents--beginning of period............... 18,306
----------
Cash and cash equivalents--end of period..................... 32,034
==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest................................................... 118,727
Income taxes............................................... 87,045
Supplemental schedule of noncash investing and financing
activities:
1. Capital lease obligations of ITL 648,231 were incurred when the Company
entered into 10 leases for new telephone and computer equipment and
vehicles.
2. Additional capital stock was issued as a result of the stock splits
described in Note 11.
3. The Company purchased the assets of Venezia Net Srl for ITL 85,500. In
conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired ........................... 150,528
Cash paid to acquire the assets.......................... (85,500)
----------
Liabilities assumed.................................... 65,028
==========
</TABLE>
See accompanying notes.
F-46
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. General
Flashnet S.p.A., the "Company", was established in Italy in 1995, and is
mainly involved in providing internet and long-distance telephone services.
2. Summary of Significant Accounting Policies
a. Basis of Financial Statements presentation
The company maintains its accounting records in Italian Liras ("ITL") and
prepares its statutory financial statements in confirmity with accounting
principles generally accepted in Italy.
The accompanying financial statements have been restated in order to comply
with accounting principles generally accepted in the United States of America,
for consolidation purposes. The main adjustments have been made to reflect the
provisions of FAS-13 (Accounting for Leases), and SOP 98-1 (Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use).
All information contained in the accompanying financial statements and
related notes are expressed in thousands of ITL ("ITL/000"), unless differently
indicated.
b. Statements of cash flows
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificate of deposits, and all highly liquid debt instruments with
original maturities of three months or less.
c. Accounts receivable
Accounts receivable are reported at net realizable value. Net realizable
value is equal to the gross amount of receivable less an allowance for doubtful
accounts, based on an estimate of the collectibility of individual accounts and
prior years' bad debt experience.
d. Inventories
Inventories are stated at the lower of cost, determined by the FIFO method,
or market.
e. Property, plant, and equipment
The cost of property, plant, and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets.
Depreciation is computed using the straight line method for both financial
reporting and income tax purposes.
Maintenance and repairs are charged to operations when incurred. Betterment
and renewals are capitalized. When property, plant, and equipment is sold or
otherwise disposed of, the asset account and related accumulated depreciation
account are relieved and any gain or loss is included in operations.
The useful lives of property, plant, and equipment for purposes of computing
depreciation are:
<TABLE>
<S> <C>
Computer and telephone equipment ............................... 8.5 years
Office furniture and equipment.................................. 3-8 years
Vehicles........................................................ 4 years
</TABLE>
Property, plant, and equipment costing less than ITL 1,000,000 is entirely
expensed in the year of acquisition.
F-47
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
g. Severance indemnities
Under Italian Law, all employees are entitled to receive severance
indemnities upon termination of their employment, based on salary paid and
increase in cost of living. The severance indemnities accrue approximately at
the rate of 1/13.5 of the gross salaries paid during the year, and are
revaluated applying a cost of living factor established by the Italian
Government.
h. Retained Earnings
Italian corporations are required, under Italian Business Law, to appropriate
to a legal reserve not less than 1/20 of the net income for the period, until
the legal reserve reaches an amount equal to 1/5 of the capital stock. The
legal reserve is not available for distribution.
i. Income taxes
Income taxes are accounted for by the asset/liability approach in accordance
with FASB Statement 109. Deferred taxes arising from taxable temporary
differences and deductible temporary differences are included in the tax
expense in the income statement and in the deferred tax balances in the balance
sheet. Deferred tax assets are subject to reduction by a valuation account if
evidence indicates that it is more likely than not that some or all the
deferred tax assets will not be realized. Income taxes attributable to items
charged or credited directly to shareholders' equity, are charged or credited
to that component of shareholders' equity.
j. Deferred income
The Company collects in advance the subscriptions as provider of Internet
services from customers, and allocates the related revenues based on time
remaining to the end of the contract. Deferred income represents the unearned
portion at the balance sheet date.
k. Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of its net assets at dates of acquisition, and is being amortized on
the straight-line method over five years. The carrying amount of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired.
Negative operating results, negative cash flows from operations, among other
factors, could be indicative of the impairment of goodwill. If this review
indicates that goodwill will not be recoverable, the Company's carrying value
of goodwill would be reduced.
l. Research and development costs and advertising costs
Research and development costs and advertising costs, are charged to
operations when incurred and are included in operating expenses.
3. Inventories
Inventories at December 31, 1998 consist of;
<TABLE>
<CAPTION>
ITL/000
-------
<S> <C>
Finished goods....................................................... 174,770
Less: allowance for obsolete inventory............................... 0
-------
174,770
=======
</TABLE>
F-48
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
4. Property, Plant, and Equipment
Following is a summary of property, plant, and equipment at cost, less
accumulated depreciation at December 31, 1998:
<TABLE>
<CAPTION>
ITL/000
---------
<S> <C>
Telephone and computer equipment (owned).......................... 2,111,169
Telephone and computer equipment (leased)......................... 1,454,404
Office furniture and equipment.................................... 283,929
Leasehold improvements............................................ 445,339
Vehicles (leased)................................................. 184,870
---------
4,479,711
Less: accumulated depreciation (831,810)
---------
3,647,901
=========
</TABLE>
Depreciation expense charged to operations for the year ended December 31,
1998 was ITL/000 525,270.
5. Other Assets
Other assets at December 31, 1998 consist of:
<TABLE>
<CAPTION>
ITL/000
---------
<S> <C>
Goodwill (net of accumulated amortization of ITL/000 456,416).... 278,527
Deferred income taxes............................................ 991,374
Others........................................................... 18,710
---------
1,288,611
=========
</TABLE>
Amortization of goodwill charged to operations for the year ended December
31, 1998 was ITL/000 131,416.
6. Other Current Liabilities
Other current liabilities at December 31, 1998 consist of:
<TABLE>
<CAPTION>
ITL/000
---------
<S> <C>
Provision for penalties and interest on late payment of payroll
taxes.......................................................... 358,780
Income taxes payable............................................ 101,619
Payroll taxes payable........................................... 679,613
Salaries payable................................................ 116,076
VAT payable..................................................... 98,584
Others.......................................................... 271,486
---------
1,626,158
=========
</TABLE>
7. Obligations under Capital Leases
The Company is the lessee of computer and telephone equipment and five
vehicles under capital leases expiring in various years through October 2003.
The assets and liabilities under capital leases are recorded at the fair value
of the leased property, which approximates the present value of the minimum
lease payments.
F-49
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
Depreciation of the assets under capital lease is included in depreciation
expense for the period and is based on the assets estimated useful life.
Accumulated depreciation of as of December 31, 1998 was ITL/000 241,657.
Minimum future lease payments as of December 31, 1998 for each of the next
five years and in the aggregate are:
<TABLE>
<CAPTION>
ITL/000
---------
<S> <C>
Year ending December 31:
1999............................................................ 555,536
2000............................................................ 483,909
2001............................................................ 204,843
2002............................................................ 20,438
2003............................................................ 16,174
Subsequent to December 31, 2003................................... 0
---------
Total minimum lease payments...................................... 1,280,900
Less: amount representing interest................................ (286,020)
---------
Present value of minimum lease payments........................... 994,880
=========
</TABLE>
The above payments are computed using the interest rate in effect at December
31, 1998; actual payments may vary because of changes in applicable rates.
All leases provide for purchase options at the expiration of the lease; the
minimum future lease payments above, include the payments required to exercise
the purchase options.
8. Severance Indemnities
The amount shown in the financial statements represents the actual liability
at the balance sheet date. Following is detail of changes during the year ended
December 31, 1998:
<TABLE>
<CAPTION>
ITL/000
-------
<S> <C>
Balance--December 31, 1997.......................................... 32,030
Severance indemnities expense for the year.......................... 72,232
Indemnities paid during the year.................................... (9,918)
------
Balance--December 31, 1998.......................................... 94,344
======
</TABLE>
Severance indemnities expense for the year ended December 31, 1998 includes
the following components:
<TABLE>
<CAPTION>
ITL/000
-------
<S> <C>
Indemnities accrued for the year..................................... 71,494
Revaluation of indemnities accrued at December 31, 1997.............. 738
------
72,232
======
</TABLE>
F-50
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
9. Bonds Payable
Bonds payable consist of 800,000, 5% unsecured convertible bonds, face value
ITL 1,000 per bond, payable in quarterly installments from December 31, 2001 to
December 31, 2003. The bonds are convertible in 114,285 common shares (7-for-
1), par value ITL 1,000 per share.
Maturities as of December 31, 1998 for each of the next 5 years and in the
aggregate are:
<TABLE>
<CAPTION>
ITL/000
-------
<S> <C>
Year ending December 31:
1999............................................................... 0
2000............................................................... 0
2001............................................................... 120,000
2002............................................................... 400,000
2003............................................................... 400,000
-------
920,000
=======
</TABLE>
Interest expense for the year ended December 31, 1998 was ITL/000 14,696.
10. Capital Stock
On August 5, 1998, the Stockholders approved:
a) A 1000-for-1 stock split, thereby increasing the number of issued and
outstanding shares from 900 to 900,000, and decreasing the par value of
each share from ITL 1,000,000 to ITL 1,000.
b) To increase the Company's capital stock from ITL 900,000,000 to ITL
1,182,857,000, issuing 282,857 additional shares of the Company's ITL
1,000 par value common stock, at a price of ITL 7,777.7817 per share.
c) A 1.84541073-for-1 stock split of the Company's ITL 1,000 par value
common stock. As a result of the split, 1,000,000 additional shares were
issued, additional paid-in capital was reduced from ITL 1,917,143,000 to
ITL 917,143,000, and common stock was increased from ITL 1,182,857,000
to ITL 2,182,857,000.
d) A capital contribution of ITL 66,748,000 as additional paid-in capital.
11. Accumulated Deficit
As described in Note 2.i, Italian corporations are required to maintain a
legal reserve that is not available for distribution, and only the
unappropriated retained earnings resulting from the statutory financial
statements prepared in accordance with Italian GAAP are available for
distribution.
Accumulated deficit as of December 31, 1998 consists of:
<TABLE>
<CAPTION>
ITL/000
----------
<S> <C>
Legal reserve (restricted)....................................... 175
Net loss for the period--Italian GAAP basis...................... (1,207,286)
Increase in accumulated deficit due to US GAAP adjustments....... (2,493,028)
----------
(3,700,139)
==========
</TABLE>
F-51
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
12. Business combinations
On November 26, 1998, the Company acquired the assets of Venezia Net S.r.l.
in a business combination accounted for as a purchase. Venezia Net S.r.l. is
primarily engaged in providing internet services. The results of operations of
Venezia Net S.r.l. are included in the accompanying financial statements since
the date of acquisition. The total cost of the acquisition was ITL/000 94,477,
which exceeded the fair value of the net assets of Venezia Net S.r.l. by
ITL/000 84,943. As indicated in Note 2.k, the excess is being amortized on the
straight-line method over five years.
13. Related-Party Transactions
The Company sells Internet services, purchases part of its computer
equipment, and leases part of its office to a minority stockholder. The Company
is also indebted with two minority stockholders because of the bonds and
related interest, described in Note 9. Following is a summary of transactions
and balances at December 31, 1998:
<TABLE>
<CAPTION>
ITL/000
-------
<S> <C>
Purchases from stockholder........................................... 375,092
=======
Sales to stockholder................................................. 57,410
=======
Rent income.......................................................... 42,000
=======
Interest on bonds.................................................... 14,696
=======
Due from stockholder (included in accounts receivable)............... 351,641
=======
Bonds payable........................................................ 800,000
=======
</TABLE>
14. Income Taxes
Income tax expense for the year ended December 31, 1998 consists of:
<TABLE>
<CAPTION>
ITL/000
---------
<S> <C>
Current........................................................... (101,618)
Deferred.......................................................... 1,116,787
---------
1,015,169
=========
</TABLE>
The following temporary differences gave rise to the current and noncurrent
deferred tax asset at December 31, 1998:
<TABLE>
<CAPTION>
ITL/000
-------
<S> <C>
Service income deferred for financial accounting purposes......... 964,301
-------
Total Deferred Tax Asset--Current................................. 964,301
=======
Lease capitalized for financial accounting purposes but expensed
for tax purposes................................................. (83,007)
Intangible assets expensed for financial accounting purposes and
deferred for tax purposes........................................ 839,381
Net operating loss carryforward................................... 235,000
-------
Total Deferred Tax Asset--Noncurrent.............................. 991,374
=======
</TABLE>
F-52
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
15. Research and Development Costs
Research and development costs charged to operations for the year ended
December 31, 1998 were ITL/000 834,041.
16. Commitments and Contingencies
a. At December 31, 1998, the Company is contingently liable for penalties
and interest relating to late payment of payroll taxes. Accordingly, a
provision of ITL/000 358,780 has been charged to operations in the
accompanying financial statements.
b. The Company leases office space under operating leases expiring in
various years through January 2004. Minimum future rental payments under
non-cancelable operating leases having remaining terms in excess of 1
year as of December 31, 1998 for each of the next 5 years and in the
aggregate are:
<TABLE>
<CAPTION>
ITL/000
---------
<S> <C>
Year ending December 31:
1999............................................................. 344,252
2000............................................................. 344,252
2001............................................................. 344,252
2002............................................................. 344,252
2003............................................................. 57,780
Subsequent to December 31, 2003.................................. 1,050
---------
Total minimum future rental payments............................. 1,435,838
=========
</TABLE>
Rental expense under operating leases for the year ended December 31, 1998
was ITL/000 118,820.
17. Subsequent Events
On April 9, 1999, the Stockholders approved:
a. To increase the Company's capital stock from ITL 2,182,857,000 to ITL
2,690,937,000, issuing 427,080 additional shares of the Company's ITL
1,000 par value common stock, at a price of ITL 4,214.667 par share.
b. To issue at no cost 171,428 warrants to purchase 171,428 shares of the
Company's common stock, ITL 1,000 par value, at ITL 7,000.0233 per
share. On the same date the Stockholders authorized the issuance of
171,428 additional shares of the Company's ITL 1,000 par value common
stock, that were reserved for that purpose. The warrants are exercisable
through December 31, 2001.
F-53
<PAGE>
FLASHNET S.p.A.
BALANCE SHEETS
MARCH 31, 1999 AND 1998
(amounts in thousands of ITL)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash................................................. 45,333 21,563
Accounts receivable (Note 2.c and 3)................. 5,886,650 2,127,182
Inventories (Notes 2.d and 4)........................ 489,895 197,190
Deferred income taxes (Notes 2.i and 13)............. 993,775 517,243
Prepaid cable rentals................................ 200,808 53,096
Other current assets................................. 403,341 61,276
---------- ----------
Total current assets............................... 8,019,802 2,977,550
Property, plant, and equipment (Notes 2.e and 5)....... 3,962,956 2,304,606
Other assets (Note 6).................................. 1,611,896 856,432
---------- ----------
Total Assets....................................... 13,594,654 6,138,588
========== ==========
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities
Bank overdraft....................................... 534,966 1,089,447
Accounts payable..................................... 7,585,701 2,999,429
Current maturities of long-term debt................. 401,217 220,614
Deferred income (Note 2.j)........................... 2,886,431 1,267,735
Other current liabilities (Note 7)................... 1,995,149 1,209,351
---------- ----------
Total current liabilities.......................... 13,403,464 6,786,576
Long-term liabilities
Obligations under capital leases (Note 8)............ 623,106 516,395
Severance indemnities (Notes 2.g and 9).............. 134,638 38,867
Bonds payable (Note 10).............................. 800,000 0
---------- ----------
Total Liabilities.................................. 14,961,208 7,341,838
---------- ----------
Stockholders deficit
Common stock, par value ITL 1,000 in 1999 and ITL
1,000,000 in 1998, authorized 2,297,142 shares in
1999 and 900 shares in 1998, issued and outstanding
2,182,857 shares in 1999 and 900 shares in 1998..... 2,182,857 900,000
Additional paid-in capital........................... 983,891 0
Accumulated deficit (Notes 2.h and 11)............... (4,533,302) (2,103,250)
---------- ----------
Total Stockholders Deficit......................... (1,366,554) (1,203,250)
---------- ----------
Total Liabilities and Stockholders Deficit......... 13,594,654 6,138,588
========== ==========
</TABLE>
See accompanying notes.
F-54
<PAGE>
FLASHNET S.p.A.
STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(amounts in thousands of ITL)
(unaudited)
<TABLE>
<S> <C> <C>
Net sales............................................. 3,174,987 1,243,465
Cost of sales......................................... (2,735,912) (1,129,140)
----------- ----------
Gross profit.......................................... 439,075 114,325
Operating expenses.................................... (1,510,442) (815,964)
----------- ----------
Loss from operations.................................. (1,071,367) (701,639)
----------- ----------
Other income (expense)
Interest expense, net .............................. (113,646) (104,334)
Penalties and interest on late payment of payroll
taxes.............................................. (11,341) (222,547)
Rent income......................................... 10,500 10,500
Others.............................................. 13,185 9,119
----------- ----------
Total other income (expense)...................... (101,302) (307,262)
----------- ----------
Loss before income taxes.............................. (1,172,669) (1,008,901)
Income taxes (Notes 2.i and 13)....................... 339,506 240,287
----------- ----------
Net loss.............................................. (833,163) (768,614)
=========== ==========
</TABLE>
See accompanying notes.
F-55
<PAGE>
FLASHNET S.p.A.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(amounts in thousands of ITL)
(unaudited)
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated
Total stock capital deficit
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, Jan. 1, 1998 ITL/000.... (434,636) 900,000 (1,334,636)
Net loss for the period ......... (768,614) (768,614)
---------- --------- ------- ----------
Balance, Mar. 31, 1998 ITL/000... (1,203,250) 900,000 (2,103,250)
========== ========= ======= ==========
Balance, Jan. 1, 1999 ITL/000.... (533,391) 2,182,857 983,891 (3,700,139)
Net loss for the period ......... (833,163) (833,163)
---------- --------- ------- ----------
Balance, Mar. 31, 1999 ITL/000... (1,366,554) 2,182,857 983,891 (4,533,302)
========== ========= ======= ==========
</TABLE>
See accompanying notes.
F-56
<PAGE>
FLASHNET S.p.A.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(amounts in thousands of ITL)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss................................................ (833,163) (768,614)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.......................... 208,548 111,937
Change in assets and liabilities
(Increase) decrease in accounts receivable............ (1,387,110) 51,762
(Increase) decrease in inventories.................... (315,125) 2,243
(Increase) decrease in deferred tax asset-current..... (29,474) 58,468
(Increase) decrease in deferred tax asset-noncurrent.. (360,032) (298,755)
Decrease in other current assets...................... 228,130 516,147
Increase in accounts payable.......................... 2,619,401 270,999
Increase (decrease) in deferred income................ 111,723 (127,928)
Increase in other current liabilities................. 368,991 468,661
Increase in severance indemnities, net................ 40,294 6,836
---------- --------
Net cash provided by operating activities............ 652,183 291,756
---------- --------
Cash flows from investing activities.....................
Purchase of property, plant, and equipment.............. (343,545) (240,668)
---------- --------
Net cash used in investing activities................ (343,545) (240,668)
---------- --------
Cash flows from financing activities.....................
(Decrease) increase in bank overdraft................... (181,471) 34,025
Principal payments under capital lease obligations...... (113,868) (81,856)
---------- --------
Net cash used in financing activities................ (295,339) (47,831)
---------- --------
Net change in cash and cash equivalents.................. 13,299 3,257
Cash and cash equivalents--beginning of period........... 32,034 18,306
---------- --------
Cash and cash equivalents--end of period................. 45,333 21,563
========== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest.............................................. 28,643 9,174
Income taxes.......................................... 0 0
Supplemental schedule of noncash investing and financing
activities:
The following capital obligations were incurred when
the Company entered into new leases for new telephone
and computer equipment................................ 143,311 106,175
</TABLE>
See accompanying notes.
F-57
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 and 1998
(unaudited)
1. General
Flashnet S.p.A., the "Company", was established in Italy in 1995, and is
mainly involved in providing internet and long-distance telephone services.
2. Summary of Significant Accounting Policies
a. Basis of Financial Statements presentation
The Company maintains its accounting records in Italian Liras ("ITL") and
prepares its statutory financial statements in conformity with accounting
principles generally accepted in Italy. The accompanying financial statements
have been restated in order to comply with accounting principles generally
accepted in the United States of America, for consolidation purposes. The main
adjustments have been made to reflect the provisions of FAS-13 (Accounting for
Leases), and SOP 98-1 (Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use).
All information contained in the accompanying financial statements and
related notes are expressed in thousands of ITL ("ITL/000"), unless otherwise
indicated.
b. Statement of cash flows
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificate of deposits, and all highly liquid debt instruments with
original maturities of three months or less.
c. Accounts receivable
Accounts receivable are reported at net realizable value. Net realizable
value is equal to the gross amount of receivable less an allowance for doubtful
accounts, based on an estimate of the collectibility of individual accounts and
prior years' bad debt experience.
d. Inventories
Inventories are stated at the lower of cost, determined by the FIFO method,
or market.
e. Property, plant, and equipment
The cost of property, plant, and equipment is depreciated over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the lesser of the term of the related lease or the estimated useful lives of
the assets. Depreciation is computed using the straight line method for both
financial reporting and income tax purposes.
Maintenance and repairs are charged to operations when incurred. Betterment
and renewals are capitalized. When property, plant, and equipment is sold or
otherwise disposed of, the asset account and related accumulated depreciation
account are relieved and any gain or loss is included in operations.
The useful lives of property, plant, and equipment for purposes of computing
depreciation are:
<TABLE>
<S> <C>
Computer and telephone equipment................................. 8.5 years
Office furniture and equipment................................... 3-8 years
Vehicles......................................................... 4 years
</TABLE>
Property, plant, and equipment costing less than ITL 1,000,000 is entirely
expensed in the year of acquisition.
F-58
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)
g. Severance indemnities
Under Italian Law, all employees are entitled to receive severance
indemnities upon termination of their employment, based on salary paid and
increase in cost of living. The severance indemnities accrue approximately at
the rate of 1/13.5 of the gross salaries paid during the year, and are
revaluated applying a cost of living factor established by the Italian
Government.
h. Retained Earnings
Italian corporations are required, under Italian Business Law, to appropriate
to a legal reserve not less than 1/20 of the net income for the period, until
the legal reserve reaches an amount equal to 1/5 of the capital stock. The
legal reserve is not available for distribution.
i. Income taxes
Income taxes are accounted for by the asset/liability approach in accordance
with FASB Statement 109. Deferred taxes arising from taxable temporary
differences and deductible temporary differences are included in the tax
expense in the income statement and in the deferred tax balances in the balance
sheet. Deferred tax assets are subject to reduction by a valuation account if
evidence indicates that it is more likely than not that some or all the
deferred tax assets will not be realized. Income taxes attributable to items
charged or credited directly to shareholders' equity, are charged or credited
to that component of shareholders' equity.
j. Deferred income
The Company collects in advance the subscriptions as provider of internet
services from customers, and allocates the related revenues based on time
remaining to the end of the contract. Deferred income represents the unearned
portion at the balance sheet date.
k. Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of its net assets at dates of acquisition, and is being amortized on
the straight-line method over five years. The carrying amount of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired.
Negative operating results, negative cash flows from operations, among other
factors, could be indicative of the impairment of goodwill. If this review
indicates that goodwill will not be recoverable, the Company's carrying value
of goodwill would be reduced.
I. Research and development costs and advertising costs
Research and development costs and advertising costs, are charged to
operations when incurred and are included in operating expenses.
3. Accounts Receivable
Following is a summary of accounts receivable at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C> <C>
Trade accounts............................... ITL/000 5,936,650 2,177,182
Less: allowance for doubtful accounts........ (50,000) (50,000)
--------- ---------
ITL/000 5,886,650 2,127,182
========= =========
</TABLE>
F-59
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)
4. Inventories
Inventories at March 31, 1999 and 1998 consist of:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C> <C>
Finished goods............................. ITL/000 489,895 197,190
Less: allowance for obsolete inventory..... 0 0
---------- ---------
ITL/000 489,895 197,190
========== =========
5. Property, Plant, and Equipment
Following is a summary of property, plant, and equipment at cost, less
accumulated depreciation at March 31, 1999 and 1998:
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C> <C>
Telephone and computer equipment (owned)... ITL/000 2,327,829 1,387,880
Telephone and computer equipment (leased).. 1,597,715 1,097,218
Office furniture and equipment............. 377,630 147,301
Leasehold improvements..................... 477,990 58,633
Vehicles (leased).......................... 185,403 0
---------- ---------
4,966,567 2,691,032
Less: accumulated depreciation............. (1,003,611) (386,426)
---------- ---------
ITL/000 3,962,956 2,304,606
========== =========
Depreciation expenses charged to operations for the three months ended March
31, 1999 and 1998, was ITL/000 171,801 and ITL/000 79,437, respectively.
6. Other Assets
Other assets at March 31, 1999 and 1998 consist of:
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C> <C>
Goodwill (net of accumulated amortization
of ITL/000 493,163 in 1999 and ITL/000
357,500 in 1998).......................... ITL/000 241,780 292,500
Deferred income taxes...................... 1,351,406 561,932
Others..................................... 18,710 2,000
---------- ---------
ITL/000 1,611,896 856,432
========== =========
</TABLE>
Amortization of goodwill charged to operations for the three months ended
March 31, 1999 and 1998, was ITL/000 36,747 and ITL/000 32,500, respectively.
F-60
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)
7. Other Current Liabilities
Other current liabilities at March 31, 1999 and 1998 consist of:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C> <C>
Provision for penalties and interest on late
payment of payroll taxes..................... ITL/000 370,121 222,547
Income taxes payable.......................... 71,031 22,967
Payroll taxes payable......................... 656,738 449,682
Salaries payable.............................. 147,419 42,146
VAT payable................................... 101,407 158,655
Others........................................ 648,433 313,354
--------- ---------
ITL/000 1,995,149 1,209,351
========= =========
</TABLE>
8. Obligations Under Capital Leases
The Company is the lessee of computer and telephone equipment and five
vehicles under capital leases expiring in various years through December 2003.
The assets and liabilities under capital leases are recorded at the fair value
of the leased property, which approximates the present value of the minimum
lease payments.
Depreciation of the assets under capital lease is included in depreciation
expense for the period and is based on the assets estimated useful life.
Accumulated depreciation of as of March 31, 1999 and 1998 was ITL/000 298,994
and ITL/000 103,146, respectively.
Minimum future lease payments as of March 31, 1999 for each of the next five
years and in the aggregate are:
<TABLE>
<S> <C> <C>
Year ending March 31:
1999...................................................... ITL/000 585,557
2000...................................................... 451,600
2001...................................................... 196,200
2002...................................................... 49,805
2003...................................................... 19,148
Subsequent to March 31, 2003.............................. 0
---------
Total minimum lease payments.............................. 1,302,310
Less: amount representing interest........................ (277,987)
---------
Present value of minimum lease payments................... ITL/000 1,024,323
=========
</TABLE>
The above payments are computed using the interest rate in effect at December
31, 1998; actual payments may vary because of changes in applicable rates.
All leases provide for purchase options at the expiration of the lease; the
minimum future lease payments above, include the payments required to exercise
the purchase options.
F-61
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)
9. Severance Indemnities
The amount shown in the financial statements represents the actual liability
at the balance sheet date. Following is detail of changes during the three
months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C> <C>
Balance--beginning of period........................ ITL/000 94,344 32,030
Severance indemnities expense for the period........ 42,474 10,244
Indemnities paid during the period.................. (2,180) (3,407)
------- ------
Balance--end of period.............................. ITL/000 134,638 38,867
======= ======
</TABLE>
Severance indemnities expense for the three months ended March 31, 1999 and
1998, includes the following components:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C> <C>
Revaluation of indemnities accrued at the beginning
of the year ....................................... ITL/000 616 232
Indemnities accrued for the period.................. 41,858 10,012
------ ------
ITL/000 42,474 10,244
====== ======
</TABLE>
10. Bonds Payable
Bonds payable consist of 800,000, 5% unsecured convertible bonds, face value
ITL 1,000 per bond, payable in quarterly installments from December 31, 2001 to
December 31, 2003. The bonds are convertible in 114,285 common shares (7-for-
1), par value ITL 1,000 per share.
Maturities as of March 31, 1999 for each of the next 5 years and in the
aggregate are:
<TABLE>
<S> <C> <C>
Year ending March 31:
1999....................................................... ITL/000 0
2000....................................................... 0
2001....................................................... 220,000
2002....................................................... 400,000
2003....................................................... 300,000
-------
ITL/000 920,000
=======
</TABLE>
Interest expense for the three months ended March 31, 1999 and 1998 was
ITL/000 9,864 and ITL/000 -0-, respectively.
11. Accumulated Deficit
As described in Note 2.i, Italian corporations are required to maintain a
legal reserve that is not available for distribution, and only the
unappropriated retained earnings resulting from the statutory financial
statements prepared in accordance with Italian GAAP are available for
distribution.
Accumulated deficit as of March 31, 1999 and 1998 consists of:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C> <C>
Legal reserve (restricted)................. ITL/000 175 175
Net loss of prior periods-Italian GAAP
basis..................................... (1,207,286) (66,748)
Net loss for the period--Italian GAAP
basis..................................... (772,995) (987,066)
Increase in accumulated deficit due to US
GAAP adjustments.......................... (2,553,196) (1,049,611)
---------- ----------
ITL/000 (4,533,302) (2,103,250)
========== ==========
</TABLE>
F-62
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)
12. Related Party Transactions
The Company sells internet services, purchases part of its computer
equipment, and leases part of its office to a minority stockholder.
The Company is also indebted with two minority stockholders because of the
bonds and related interest, described in Note 9.
Following is a summary of transactions and balances at March 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C> <C>
Purchases from stockholder......................... ITL/000 71,022 60,966
======= =======
Sales to stockholder............................... 82,193 14,085
======= =======
Rent income........................................ 10,500 10,500
======= =======
Interest on bonds.................................. 9,864 0
======= =======
Due from stockholder (included in accounts
receivable)....................................... 613,898 514,524
======= =======
Due to stockholder (included in accounts payable).. 144,734 173,419
======= =======
Bonds payable...................................... ITL/000 800,000 0
======= =======
</TABLE>
13. Income Taxes
Income tax expense for the three months ended March 31, 1999 and 1998
consists of:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C> <C>
Current............................................. ITL/000 (50,000) 0
Deferred............................................ 389,506 240,287
------- -------
ITL/000 339,506 240,287
======= =======
</TABLE>
The following temporary differences gave rise to the current and noncurrent
deferred tax asset at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C> <C>
Service income deferred for financial
accounting purposes........................... ITL/000 993,775 517,243
--------- -------
Total Deferred Tax Asset--Current.............. ITL/000 993,775 517,243
========= =======
<CAPTION>
1999 1998
--------- -------
<S> <C> <C> <C>
Lease capitalized for financial accounting
purposes but expensed for tax purposes........ ITL/000 (94,152) (39,578)
Intangible assets expensed for financial
accounting purposes and deferred for tax
purposes...................................... 970,558 363,278
Net operating loss carryforward................ 475,000 238,232
--------- -------
Total Deferred Tax Asset--Noncurrent....... ITL/000 1,351,406 561,932
========= =======
</TABLE>
F-63
<PAGE>
FLASHNET S.p.A.
NOTES TO FINANCIAL STATEMENTS--(Continued)
March 31, 1999 and 1998
(unaudited)
14. Research and Development Costs
Research and development costs charged to operations for the three months
ended March 31, 1999 and 1998 were ITL/000 113,504 and ITL/000 212,639.
15. Commitments and Contingencies
a) At March 31, 1999, the Company is contingently liable for penalties and
interest relating to late payment of payroll taxes. The accompanying
financial statements at March 31, 1999, include a provision of ITL/000
370,121 with regards to such contingency.
b) The Company leases office space under operating leases expiring in
various years through January 2004. Minimum future rental payments under
non-cancelable operating leases having remaining terms in excess of 1
year as of March 31, 1999 for each of the next 5 years and in the
aggregate are:
<TABLE>
<S> <C> <C>
Year ending March 31:
1999................................................... ITL/000 344,252
2000................................................... 344,252
2001................................................... 344,252
2002................................................... 272,634
2003................................................... 43,598
Subsequent to March 31, 2003............................. 788
---------
Total minimum future rental payments..................... ITL/000 1,349,776
=========
</TABLE>
Rental expense under operating leases for the three months ended March 31,
1999 and 1998 was ITL/000 102,155 and ITL/000 61,144, respectively.
16. Subsequent Events
On April 9, 1999, the Stockholders approved:
a) To increase the Company's capital stock from ITL 2,182,857,000 to ITL
2,609,937,000, issuing 427,080 additional shares of the Company's ITL
1,000 par value common stock, at a price of ITL 4,214.667 per share.
b) To issue, at no-cost, 171,428 warrants to purchase 171,428 shares of the
Company's common stock, ITL 1,000 par value, at ITL 7,000.0233 per
share. On the same date the Stockholders authorized the issuance of
171,428 additional shares of the Company's ITL 1,000 par value common
stock, that were reserved for that purpose. The warrants are exercisable
through December 31, 2001.
F-64
<PAGE>
Head Office of the Company
Stefan-George-Ring 19-23
D-81929 Munich
Germany
Auditors to the Company
Schitag Ernst & Young
Deutsche Allgemeine Treuhand AG
Eschersheimer Landstrasse 14
D-60322 Frankfurt
Germany
Trustee
The Bank of New York
101 Barclay Street
New York, New York 10286
U.S.A.
Exchange Agent
The Bank of New York
101 Barclay Street
New York, New York 10286
U.S.A.
Legal Advisors to the Company
as to U.S. law
as to German law
Powell, Goldstein, Frazer & Murphy Besner Kreifels Weber
LLP 41 Widenmayerstrasse
1001 Pennsylvania Ave, NW D-80538 Munich
Washington, DC 20004 Germany
U.S.A.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD DIRECT ALL TENDERED OUTSTANDING NOTES, EXECUTED LETTERS OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS TO THE EXCHANGE AGENT. YOU SHOULD
DIRECT ALL QUESTIONS AND REQUESTS FOR ASSISTANCE AND REQUEST FOR ADDITIONAL
COPIES OF THIS PROSPECTUS, THE LETTER OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS TO THE EXCHANGE AGENT.
The exchange agent for this exchange offer is:
The Bank of New York
<TABLE>
<S> <C> <C>
By Registered or Certified
Mail: By Facsimile Transmission: By Hand or Overnight Delivery:
The Bank of New York (For Eligible Institutions Only) The Bank of New York
101 Barclay Street (212) 815-6339 101 Barclay Street, Ground Level
Floor 7 East Corporation Trust Services Window
New York, New York 10286 To Confirm by Telephone or For New York, New York 10286
Attention: Enrique Lopez Information Call: Attention: Enrique Lopez
Reorganization Section (212) 815-2742 Reorganization Section
</TABLE>
(YOU SHOULD PROMPTLY SEND ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE
BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL.)
---------------
UNTIL April 9, 2000 (180 DAYS AFTER THE COMMENCEMENT OF THIS EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
---------------
OFFER TO EXCHANGE ANY AND ALL
OUTSTANDING
14.0% SENIOR NOTES
DUE 2009
FOR
14.0% SENIOR NOTES
DUE 2009
---------------
PROSPECTUS
---------------
Dated October 7, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits indemnification
of directors, officers, employees and agents of corporations for liabilities
arising under the Securities Act of 1933, as amended.
The registrant's Certificate of Incorporation and By-laws provide for
indemnification of the registrant's directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law.
Statutory Provisions
Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation in its certificate of incorporation to eliminate or limit the
personal liability of members of its Board of Directors to the corporation or
its stockholders for monetary damages for violations of a director's fiduciary
duty of care. The provision would have no effect on the availability of
equitable remedies, such as an injunction or rescission, for breach of
fiduciary duty. In addition, no provision may eliminate or limit the liability
misconduct or knowingly violating a law, paying an unlawful dividend or
approving an illegal stock repurchase, or obtaining an improper personal
benefit.
Section 145 of the Delaware General Corporation Law empowers a corporation to
indemnify any person who was or is a party to or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for expenses which the court shall deem proper. Additionally, a
corporation is required to indemnify its directors and officers against
expenses to the extent that the directors or officers have been successful on
the merits or otherwise in any action, suit or proceeding or in defense of any
claim, issue or matter.
An indemnification can be made by the corporation only upon a determination
that indemnification is proper in the circumstances because the party seeking
indemnification has met the applicable standard of conduct as set forth in the
Delaware General Corporation Law. The indemnification provided by the Delaware
General Corporation Law shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. A corporation
also has the power to purchase and maintain insurance on behalf of any person,
whether or not the corporation would have the power to indemnify him against
such liability. The indemnification provided by the Delaware General
Corporation Law shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of the person.
The Company's Charter Provision
Our Company's Certificate of Incorporation limits a director's liability for
monetary damages to our Company and our stockholders for breaches of fiduciary
duty except under the circumstances outlined in the Delaware General
Corporation Law as described above under "Statutory Provisions."
Our Company's Certificate of Incorporation extends indemnification rights to
the fullest extent authorized by the Delaware General Corporation Law to
directors and officers involved in any action, suit or proceeding where the
basis of the involvement is the person's alleged action in an official capacity
or in any other capacity while serving as a director or officer of our Company.
II-1
<PAGE>
Item 21. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Amended Underwriting Agreement (Incorporated by reference as Exhibit
1.1 to the Form S-1/A Registration Statement filed with the Commission
on November 25, 1998).
1.2* Purchase Agreement dated July 1, 1999 by and among the Company, Lehman
Brothers International (Europe) and Morgan Stanley & Co. International
Limited relating to the Company's $150,000,000 in Units comprised of
14% Senior Notes due 2009 and Warrants.
1.3* Purchase Agreement dated as of August 19, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's (Euro)25,000,000 Convertible Senior Subordinated Pay-In-Kind
Notes due 2009.
1.4* Purchase Agreement dated as of August 19, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's $35,000,000 13.0% Convertible Senior Subordinated Discount
Notes due 2009.
1.5* Purchase Agreement dated as of August 23, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's $15,002,183 13.0% Convertible Senior Subordinated Discount
Notes due 2009.
3.1* Certificate of Incorporation. (Incorporated by reference as Exhibit
3.1 to the Form S-1 Registration Statement filed with the Commission
on September 18, 1998).
3.2* Bylaws (Incorporated by reference as Exhibit 3.2 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
4.1* Unit Agreement dated as of July 8, 1999 by and among the Company,
Lehman Brothers International (Europe) and Morgan Stanley & Co.
International Limited.
4.2* Indenture dated as of July 8, 1999 by and between the Company and The
Bank of New York, relating to the Company's notes contained in the
Units.
4.3* Collateral Agreement dated as of July 8, 1999 by and among the
Company, Lehman Brothers International (Europe) and Morgan Stanley &
Co. International Limited, relating to the Unit Agreement.
4.4* Registration Rights Agreement dated as of July 8, 1999 by and among
the Company, Lehman Brothers International (Europe) and Morgan Stanley
& Co. International Limited, relating to the Company's notes contained
in the Units.
4.5* Warrant Agreement, dated as of July 8, 1999 by and among Cybernet
Internet Services International, Inc., Lehman Brothers International
(Europe) and Morgan Stanley & Co. International Limited, relating to
the Company's warrants contained in the Units.
5.1** Opinion of Powell, Goldstein, Frazer & Murphy LLP.
8.1** Opinion of Powell, Goldstein, Frazer & Murphy LLP re tax matters.
10.1* Sale and Assignment of Business Shares of the Artwise GmbH Software
Losugen dated September 18, 1997 by and among Mr. Stefan
Heiligensetzer, Mr. Frank Marchewicz, Mr. Rolf Strehle, Mr. Gerhard
Schonenberger, Mr. Lothar Bernecker, Artwise GmbH Software Solutions,
Cybernet Internet--Dienstleistungen AG and Cybernet Internet--
Beteiligungs GmbH (Incorporated by reference as Exhibit 10.1 to the
Form S-1 Registration Statement filed with the Commission on September
18, 1998).
10.2* Sale and Assignment of Shares in OpenNet Internet Solutions GmbH dated
August 12, 1998 by and among Mr. Thomas Egner, Mr. Uwe Hagenmeier, Mr.
Markus Kress, Mr. Oliver Schaffer, Cybernet Internet Dienstleistungen
AG, and Cybernet Internet--Beteiligungs GmbH (Incorporated by
reference as Exhibit 10.2 to the Form S-1 Registration Statement filed
with the Commission on September 18, 1998).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.3* Private Agreement for the Sale of Company Shareholdings and Increase
of Share Capital dated December 4, 1997 by and among Cybernet Internet
Dienstleistung ag, Mr. Robert Loro, Stefano Longano, Domenico Loro,
Angelo Longano, Emma Pontara, Maria Teresa Francesconi and Mauro
Longano (Incorporated by reference as Exhibit 10.3 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.4* Stock Purchase Agreement dated June 17, 1998 among the Company,
Tristan Libischer, and Alexander Wiesmuller (Incorporated by reference
as Exhibit 10.4 to the Form S-1 Registration Statement filed with the
Commission on September 18, 1998).
10.5* Stock Purchase Agreement, dated June 11, 1997, among the Company,
Cybermind Interactive Europe AG, Rudolf Strobl, Roland Manger, Thomas
Schulz, Andreas Eder, and Holger Timm (Incorporated by reference as
Exhibit 10.5 to the Form S-1 Registration Statement filed with the
Commission on September 18, 1998).
10.6* Pooling and Trust Agreement dated August 18, 1997 among Cybermind
Interactive Europe AG, Andreas Eder, Roland Manger, Thomas Schulz,
Rudolf Strobl, Holger Timm, and Dr. Hurbert Besner, as trustee
(Incorporated by reference as Exhibit 10.6 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.7* Pooling and Trust Agreement dated August 1, 1998 between Stefan
Heiligensetzer and Dr. Hubert Besner, as trustee (Incorporated by
reference as Exhibit 10.7 to the Form S-1 Registration Statement filed
with the Commission on September 18, 1998).
10.7.1* Schedule of Additional Artwise Pooling Agreements, referencing
agreements of Mr. Marchewicz, Mr. Strehle, Mr. Schonenberger and Mr.
Bernecker (Incorporated by reference as Exhibits 10.7 and 10.7.1 to
the Form S-1 Registration Statement filed with the Commission on
September 18, 1998).
10.8* Consulting Agreement dated December 15, 1997 between Cybernet
Internet--Dienstleistungen AG and Eiderdown Trading Ltd. (Incorporated
by reference as Exhibit 10.8 to the Form S-1 Registration Statement
filed with the Commission on September 18, 1998).
10.9* Employment Contract dated February 23, 1998 between Cybernet
Internet--Dienstleistungen Aktiengesellschaft and Andreas Eder
(Incorporated by reference as Exhibit 10.9 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.10* Employment Contract dated May 15, 1997 between Cybernet Internet--
Dienstleistungen Aktiengesellschaft and Alessondro Giacalone
(Incorporated by reference as Exhibit 10.10 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.11* Employment Contract dated April 28, 1997 between Cybernet Internet
Dienstleistungen AG and Christian Moosmann (Incorporated by reference
as Exhibit 10.11 to the Form S-1 Registration Statement filed with the
commission on September 18, 1998).
10.12* Employment Contract dated February 23, 1998 between Cybernet
Internet--Dienstleistungen Aktiengesellschaft and Rudolf Strobl
(Incorporated by reference as Exhibit 10.12 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.13* Sublease for business premises office dated February 29, 1996 between
KG Bayerische Hausbau GmbH and Co. and Cybernet AG.i.G. (Incorporated
by reference as Exhibit 10.13 to the Form S-1 Registration Statement
filed with the Commission on September 18, 1998).
10.14* Full Amortization leasing Agreement No. 13 00 00 for Hard- and
Software with purchase, extension and return options between CyberNet
Internet--Dienstleistungen AG and Miller Leasing Miete GMbH dated
January 22, 1998 (Incorporated by reference as Exhibit 10.14 to the
Form S-1 Registration Statement filed with the Commission on September
18, 1998).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.15* Agreement on the use of Data Communication Installations of Info AG
dated July 29, 1996 between Info AG and CyberNet Internet--
Dienstleistungen Ag (Incorporated by reference as Exhibit 10.15 to the
Form S-1 Registration Statement filed with the Commission on September
18, 1998).
10.16* Ebone Internet Access Contract dated February 26, 1997 between Ebone
Inc. and Cybernet AG (Incorporated by reference as Exhibit 10.16 to
the Form S-1 Registration Statement filed with the Commission on
September 18, 1998).
10.17* Agreement, undated, between feratel International GmbH and Cybernet
Internet--Dienstleistungen AG (Incorporated by reference as Exhibit
10.17 to the Form S-1 Registration Statement filed with the Commission
on September 18, 1998).
10.18* Cybernet Internet Services International, Inc. 1998 Stock Incentive
Plan (Incorporated by reference as Exhibit 10.18 to the Form S-1/A
Registration Statement filed with the Commission on November 5, 1998).
10.19* Cybernet Internet Services International, Inc. 1998 Outside Directors'
Stock Option Plan (Incorporated by reference as Exhibit 10.19 to the
Form S-1/A Registration Statement filed with the Commission on
November 5, 1998).
10.20* Agreement and Plan of Merger, dated October 9, 1998, between the
Company, a Utah corporation, and Cybernet Internet Services
International, Inc., a Delaware corporation (Incorporated by reference
as Exhibit 2.1 to the Form S-1/A Registration Statement filed on
November 5, 1998).
10.23* Registration Rights Agreement dated August 26, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's (Euro)25,000,000 Convertible Senior Subordinated Pay-In-Kind
Notes due 2009.
10.24* Indenture dated August 26, 1999 by and between the Company and The
Bank of New York relating to the Company's (Euro)25,000,000
Convertible Senior Subordinated Pay-In-Kind Notes due 2009.
10.26* Registration Rights Agreement dated August 26, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
company's $35,000,000 13.0% Convertible Senior Subordinated Discount
Notes due 2009
10.27* Registration Rights Agreement dated August 26, 1999 by and between the
Company and Morgan Stanley & Co. International Ltd. relating to the
company's $15,002,183 13.0% Convertible Senior Subordinated Discount
Notes due 2009.
10.28** Indenture dated August 26, 1999 by and between the Company and The
Bank of New York relating to the company's $35,000,000 and $15,002,183
13.0% Convertible Senior Subordinated Discount Notes due 2009.
21.1* Subsidiaries.
23.1** Consent of Schitag Ernst & Young.
23.2** Consent of Ernst & Young, Wirtschaftsprufungs-Und,
Steuerberatungsellschaft MBH.
23.3** Consent of Grant Thornton S.p.A.
24.1 Power of Attorney (included in the signature page hereto).
25.1* Statement of Eligibility of Trustee.
27.1* Financial Data Schedule.
99.1** Letter of Transmittal
99.2** Notice of Guaranteed Delivery
99.3** Beneficial Owner Instruction Letter
</TABLE>
- --------
* Previously filed
** Filed herewith
II-4
<PAGE>
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement related to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering
or throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be furnished,
provided, that the registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to the
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In
II-5
<PAGE>
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Munich,
Germany, on October 6, 1999.
Cybernet Internet Services
International, Inc.
/s/ Andreas Eder
By: ___________________________________
Andreas Eder
Chairman of the Board of Directors,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Andreas Eder Chairman of the Board of October 6, 1999
- ---------------------------- Directors, President and
Andreas Eder Chief Executive Officer
(Principal Executive
Officer)
_____ Robert Eckert ______* Chief Financial Officer and October 6, 1999
- ---------------------------- Treasurer (Principal
Robert Eckert Financial and Accounting
Officer)
____________ Dr. Alessandro Director and Chief October 6, 1999
Giacalone _________________* Operating Officer
- ----------------------------
Dr. Alessandro Giacalone
__ Robert Fratarcangelo __* Director and Secretary October 6, 1999
- ----------------------------
Robert Fratarcangelo
___ Dr. Hubert Besner ____* Director October 6, 1999
- ----------------------------
Dr. Hubert Besner
___ Tristan Libischer ____* Director October 6, 1999
- ----------------------------
Tristan Libischer
__ G. W. Norman Wareham __* Director October 6, 1999
- ----------------------------
G. W. Norman Wareham
The undersigned Attorney-in-Fact, by signing his name below, does hereby sign
Amendment No. 1 to this registration statement on behalf of the indicated
officers and directors of the Registrant pursuant to a power of attorney
executed by such persons and filed as part of the original registration
statement.
*By __/s/ Andreas Eder ___
Andreas Eder
Attorney-in-Fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Amended Underwriting Agreement (Incorporated by reference as Exhibit
1.1 to the Form S-1/A Registration Statement filed with the Commission
on November 25, 1998).
1.2* Purchase Agreement dated July 1, 1999 by and among the Company, Lehman
Brothers International (Europe) and Morgan Stanley & Co. International
Limited relating to the Company's $150,000,000 in Units comprised of
14% Senior Notes due 2009 and Warrants.
1.3* Purchase Agreement dated as of August 19, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's (Euro)25,000,000 Convertible Senior Subordinated Pay-In-Kind
Notes due 2009.
1.4* Purchase Agreement dated as of August 19, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's $35,000,000 13.0% Convertible Senior Subordinated Discount
Notes due 2009.
1.5* Purchase Agreement dated as of August 23, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's $15,002,183 13.0% Convertible Senior Subordinated Discount
Notes due 2009.
3.1* Certificate of Incorporation. (Incorporated by reference as Exhibit
3.1 to the Form S-1 Registration Statement filed with the Commission
on September 18, 1998).
3.2* Bylaws (Incorporated by reference as Exhibit 3.2 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
4.1* Unit Agreement dated as of July 8, 1999 by and among the Company,
Lehman Brothers International (Europe) and Morgan Stanley & Co.
International Limited.
4.2* Indenture dated as of July 8, 1999 by and between the Company and The
Bank of New York, relating to the Company's notes contained in the
Units.
4.3* Collateral Agreement dated as of July 8, 1999 by and among the
Company, Lehman Brothers International (Europe) and Morgan Stanley &
Co. International Limited, relating to the Unit Agreement.
4.4* Registration Rights Agreement dated as of July 8, 1999 by and among
the Company, Lehman Brothers International (Europe) and Morgan Stanley
& Co. International Limited, relating to the Company's notes contained
in the Units.
4.5* Warrant Agreement, dated as of July 8, 1999 by and among Cybernet
Internet Services International, Inc., Lehman Brothers International
(Europe) and Morgan Stanley & Co. International Limited, relating to
the Company's warrants contained in the Units.
5.1** Opinion of Powell, Goldstein, Frazer & Murphy LLP.
8.1** Opinion of Powell, Goldstein, Frazer & Murphy LLP re tax matters.
10.1* Sale and Assignment of Business Shares of the Artwise GmbH Software
Losugen dated September 18, 1997 by and among Mr. Stefan
Heiligensetzer, Mr. Frank Marchewicz, Mr. Rolf Strehle, Mr. Gerhard
Schonenberger, Mr. Lothar Bernecker, Artwise GmbH Software Solutions,
Cybernet Internet--Dienstleistungen AG and Cybernet Internet--
Beteiligungs GmbH (Incorporated by reference as Exhibit 10.1 to the
Form S-1 Registration Statement filed with the Commission on September
18, 1998).
10.2* Sale and Assignment of Shares in OpenNet Internet Solutions GmbH dated
August 12, 1998 by and among Mr. Thomas Egner, Mr. Uwe Hagenmeier, Mr.
Markus Kress, Mr. Oliver Schaffer, Cybernet Internet Dienstleistungen
AG, and Cybernet Internet--Beteiligungs GmbH (Incorporated by
reference as Exhibit 10.2 to the Form S-1 Registration Statement filed
with the Commission on September 18, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.3* Private Agreement for the Sale of Company Shareholdings and Increase
of Share Capital dated December 4, 1997 by and among Cybernet Internet
Dienstleistung ag, Mr. Robert Loro, Stefano Longano, Domenico Loro,
Angelo Longano, Emma Pontara, Maria Teresa Francesconi and Mauro
Longano (Incorporated by reference as Exhibit 10.3 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.4* Stock Purchase Agreement dated June 17, 1998 among the Company,
Tristan Libischer, and Alexander Wiesmuller (Incorporated by reference
as Exhibit 10.4 to the Form S-1 Registration Statement filed with the
Commission on September 18, 1998).
10.5* Stock Purchase Agreement, dated June 11, 1997, among the Company,
Cybermind Interactive Europe AG, Rudolf Strobl, Roland Manger, Thomas
Schulz, Andreas Eder, and Holger Timm (Incorporated by reference as
Exhibit 10.5 to the Form S-1 Registration Statement filed with the
Commission on September 18, 1998).
10.6* Pooling and Trust Agreement dated August 18, 1997 among Cybermind
Interactive Europe AG, Andreas Eder, Roland Manger, Thomas Schulz,
Rudolf Strobl, Holger Timm, and Dr. Hurbert Besner, as trustee
(Incorporated by reference as Exhibit 10.6 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.7* Pooling and Trust Agreement dated August 1, 1998 between Stefan
Heiligensetzer and Dr. Hubert Besner, as trustee (Incorporated by
reference as Exhibit 10.7 to the Form S-1 Registration Statement filed
with the Commission on September 18, 1998).
10.7.1* Schedule of Additional Artwise Pooling Agreements, referencing
agreements of Mr. Marchewicz, Mr. Strehle, Mr. Schonenberger and Mr.
Bernecker (Incorporated by reference as Exhibits 10.7 and 10.7.1 to
the Form S-1 Registration Statement filed with the Commission on
September 18, 1998).
10.8* Consulting Agreement dated December 15, 1997 between Cybernet
Internet--Dienstleistungen AG and Eiderdown Trading Ltd. (Incorporated
by reference as Exhibit 10.8 to the Form S-1 Registration Statement
filed with the Commission on September 18, 1998).
10.9* Employment Contract dated February 23, 1998 between Cybernet
Internet--Dienstleistungen Aktiengesellschaft and Andreas Eder
(Incorporated by reference as Exhibit 10.9 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.10* Employment Contract dated May 15, 1997 between Cybernet Internet--
Dienstleistungen Aktiengesellschaft and Alessondro Giacalone
(Incorporated by reference as Exhibit 10.10 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.11* Employment Contract dated April 28, 1997 between Cybernet Internet
Dienstleistungen AG and Christian Moosmann (Incorporated by reference
as Exhibit 10.11 to the Form S-1 Registration Statement filed with the
commission on September 18, 1998).
10.12* Employment Contract dated February 23, 1998 between Cybernet
Internet--Dienstleistungen Aktiengesellschaft and Rudolf Strobl
(Incorporated by reference as Exhibit 10.12 to the Form S-1
Registration Statement filed with the Commission on September 18,
1998).
10.13* Sublease for business premises office dated February 29, 1996 between
KG Bayerische Hausbau GmbH and Co. and Cybernet AG.i.G. (Incorporated
by reference as Exhibit 10.13 to the Form S-1 Registration Statement
filed with the Commission on September 18, 1998).
10.14* Full Amortization leasing Agreement No. 13 00 00 for Hard- and
Software with purchase, extension and return options between CyberNet
Internet--Dienstleistungen AG and Miller Leasing Miete GMbH dated
January 22, 1998 (Incorporated by reference as Exhibit 10.14 to the
Form S-1 Registration Statement filed with the Commission on September
18, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.15* Agreement on the use of Data Communication Installations of Info AG
dated July 29, 1996 between Info AG and CyberNet Internet--
Dienstleistungen Ag (Incorporated by reference as Exhibit 10.15 to the
Form S-1 Registration Statement filed with the Commission on September
18, 1998).
10.16* Ebone Internet Access Contract dated February 26, 1997 between Ebone
Inc. and Cybernet AG (Incorporated by reference as Exhibit 10.16 to
the Form S-1 Registration Statement filed with the Commission on
September 18, 1998).
10.17* Agreement, undated, between feratel International GmbH and Cybernet
Internet--Dienstleistungen AG (Incorporated by reference as Exhibit
10.17 to the Form S-1 Registration Statement filed with the Commission
on September 18, 1998).
10.18* Cybernet Internet Services International, Inc. 1998 Stock Incentive
Plan (Incorporated by reference as Exhibit 10.18 to the Form S-1/A
Registration Statement filed with the Commission on November 5, 1998).
10.19* Cybernet Internet Services International, Inc. 1998 Outside Directors'
Stock Option Plan (Incorporated by reference as Exhibit 10.19 to the
Form S-1/A Registration Statement filed with the Commission on
November 5, 1998).
10.20* Agreement and Plan of Merger, dated October 9, 1998, between the
Company, a Utah corporation, and Cybernet Internet Services
International, Inc., a Delaware corporation (Incorporated by reference
as Exhibit 2.1 to the Form S-1/A Registration Statement filed on
November 5, 1998).
10.23* Registration Rights Agreement dated August 26, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
Company's (Euro)25,000,000 Convertible Senior Subordinated Pay-In-Kind
Notes due 2009.
10.24* Indenture dated August 26, 1999 by and between the Company and The
Bank of New York relating to the Company's (Euro)25,000,000
Convertible Senior Subordinated Pay-In-Kind Notes due 2009.
10.26* Registration Rights Agreement dated August 26, 1999 by and between the
Company and Morgan Stanley & Co. International Limited relating to the
company's $35,000,000 13.0% Convertible Senior Subordinated Discount
Notes due 2009
10.27* Registration Rights Agreement dated August 26, 1999 by and between the
Company and Morgan Stanley & Co. International Ltd. relating to the
company's $15,002,183 13.0% Convertible Senior Subordinated Discount
Notes due 2009.
10.28** Indenture dated August 26, 1999 by and between the Company and The
Bank of New York relating to the company's $35,000,000 and $15,002,183
13.0% Convertible Senior Subordinated Discount Notes due 2009.
21.1* Subsidiaries.
23.1** Consent of Schitag Ernst & Young.
23.2** Consent of Ernst & Young, Wirtschaftsprufungs-Und,
Steuerberatungsellschaft MBH.
23.3** Consent of Grant Thornton S.p.A.
24.1 Power of Attorney (included in the signature page hereto).
25.1* Statement of Eligibility of Trustee.
27.1* Financial Data Schedule.
99.1** Letter of Transmittal.
99.2** Note of Guaranteed Delivery.
99.3** Beneficial Owner Instruction Letter.
</TABLE>
- --------
* Previously filed
** Filed herewith
<PAGE>
Exhibit 5.1
[Letterhead of Powell, Goldstein, Frazer & Murphy LLP]
October 7, 1999
Cybernet Internet Services International, Inc.
Stefan-George-Ring 19-23
D-81929 Munich
Germany
Re: Cybernet Internet Services International, Inc.
14.0% Senior Notes due 2009
Ladies and Gentlemen:
We have served as counsel to Cybernet Internet Services International, Inc.,
a Delaware corporation (the "Company"), in connection with the offer to
exchange (the "Exchange Offer") up to $150,000,000 aggregate principal amount
of registered 14.0% Senior Notes due 2009 (the "Exchange Notes") for a like
principal amount of the Company's issued and outstanding 14.0% Senior Notes due
2009 issued and sold in a Rule 144A offering (the "Outstanding Notes") pursuant
to the Registration Statement on Form S-4, as amended, filed by the Company
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), on October 7, 1999
(the "Registration Statement"). The Exchange Notes will be issued by the
Company pursuant to the terms of the Indenture dated as of July 8, 1999 (the
"Indenture") between the Company and The Bank of New York, as trustee,
registrar and paying agent (the "Trustee").
In connection with the Registration Statement, we have been requested to
render our opinion as to the legality of the securities being registered
thereunder. The Exchange Notes and the Outstanding Notes are referred to
collectively herein as the "Notes." Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Registration
Statement.
In our capacity as counsel, we have examined originals, conformed copies or
photocopies, certified or otherwise identified to our satisfaction, of the
following: (i) the Indenture; (ii) the Registration Statement (including the
exhibits thereto); (iii) specimens of the Notes; (iv) the Certificate of
Incorporation and Bylaws of the Company; (v) certain corporate records of the
Company; and (vi) such other documents, records, certificates of officers of
the Company and certificates of public officials as we have deemed appropriate
for the purpose of providing the opinions set forth below.
In rendering the opinions expressed below, we have assumed, with your
permission, without independent investigation or inquiry: (a) the legal
capacity of all natural persons executing documents; (b) the authenticity of
all documents submitted to us as originals; (c) the genuineness of all
signatures on all documents that we have examined; and (d) the conformity to
authentic originals of documents submitted to us as certified, conformed or
photostatic copies. As to all questions of fact material to the opinions
specified herein, we have relied upon certificates of officers of the Company.
With respect to certificates of public officials, we have assumed that all such
certificates are accurate and properly given and have relied on the factual
matters set forth in such certificates.
In rendering the opinions set forth below, we have assumed that the Exchange
Notes will be issued as described in the Registration Statement.
Based on the foregoing, and subject to the assumptions, exceptions and
qualifications set forth herein, we are of the opinion that:
1. Assuming due authorization, execution and delivery by the Trustee, the
Indenture represents a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except
<PAGE>
Cybernet Internet Services International, Inc.
October 7, 1999
Page 2
as such enforceability may be subject to: (a) bankruptcy, insolvency,
fraudulent conveyance or transfer, reorganization, moratorium or other similar
laws affecting creditors' rights generally; and (b) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law).
2. When issued, authenticated and delivered in accordance with the terms of
the Indenture, the Exchange Notes will be legal, valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by: (a) bankruptcy, insolvency,
fraudulent conveyance or transfer, reorganization, moratorium and other similar
laws affecting creditors' rights generally; and (b) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law).
Our opinions expressed above are limited to the General Corporation Law of
the State of Delaware and the federal laws of the United States. Our opinions
are rendered only with respect to the laws, and the rules, regulations and
orders thereunder, that are currently in effect.
We hereby consent to the use of our name in the Registration Statement and in
the Prospectus therein as the same appears in the caption "Legal Matters" and
to the filing of this opinion as an exhibit to the Registration Statement. In
giving this consent, we do not thereby admit that we come within the category
of persons whose consent is required by the Securities Act or by the rules and
regulations promulgated thereunder.
Very truly yours,
/s/
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE>
[LETTERHEAD OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP APPEARS HERE]
October 7, 1999
Cybernet Internet Services International, Inc.
Stefan-George Ring 19-23
D-81929 Munich
GERMANY
Subject: Federal Income Tax Consequences of Transactions
Pursuant to the Exchange Offer
Gentlemen:
You have requested that we render this opinion to you with respect to the
material federal income tax issues with respect to the acquisition, ownership
and disposition of notes ("Exchange Notes") offered by Cybernet Internet
Services International, Inc., a Delaware corporation (the "Company"), in
exchange for outstanding notes of the Company pursuant to the Exchange Offer.
All capitalized terms which are used but not defined herein shall have the same
meaning attributed to them in the Registration Statement filed with the
Securities and Exchange Commission concerning the Exchange Offer, dated
October 7, 1999 (the "Registration Statement").
For purposes of rendering the opinions expressed in this letter, we have
examined the Registration Statement and all materials, documents, agreements
referenced therein and such other instruments and documents as we have deemed
necessary or appropriate for the purposes of rendering this opinion.
Based upon the foregoing and subject to the assumptions, qualifications and
limitations hereinafter stated, we are of the opinion that the discussion in the
Registration Statement under the caption "CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES," insofar as it contains statements of federal income tax law
or conclusions with respect to federal income tax law, is correct in all
material respects.
It is our intention in rendering this opinion to follow all relevant
professional standards, including those expressed in American Bar Association
Formal Opinion 346 (Revised), and Treasury Department Circular No. 230,
(Revised) as amended (31 C.F.R. Part 10), both of which direct a lawyer in
issuing a tax opinion to consider all material tax issues and to address fully
and fairly in the offering materials all of such issues which involve the
reasonable possibility of a challenge by the Internal Revenue Service.
<PAGE>
Cybernet Internet Services International, Inc.
October 7, 1999
Page 2
In addition to those assumptions, qualifications and limitations set forth
in the Registration Statement, the opinions contained in this letter are subject
to the following assumptions, qualifications and limitations.
(a) We have assumed the genuineness of all signatures and the authenticity
of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as certified or
facsimile copies.
(b) Our opinion is based upon the facts existing on the date of our
rendering of the opinion, as those facts are described in the
Registration Statement.
(c) Our opinion is based upon existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and currently
effective Treasury Regulations promulgated under the Code, applicable
legislative history of the Code, and existing judicial decisions and
present administrative rulings and practices, all of which are subject
to change and differing interpretations at any time. Any change in the
state of existing tax law may render inaccurate the opinions set forth
above.
(d) It is not possible to predict with certainty how the federal income
tax law will develop or how the courts will decide various tax issues
if they are litigated. In addition, an opinion of counsel is not
binding on the Internal Revenue Service or the courts. Accordingly, no
assurance can be given that the Internal Revenue Service will not take
a position on any one or more issues which is contrary to the opinion
expressed herein or in the Registration Statement or that the Internal
Revenue Service will not be successful in such contrary position.
(e) Other than as specifically set forth in this letter or in the
discussions in the Registration Statement under the caption "CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES," we express no opinion
with respect to the federal income tax treatment of any specific
matter related to the acquisition, ownership or disposition of the
Exchange Notes, or with respect to the tax laws of any state, locality
or other jurisdiction within or without the United States.
Respectfully,
/s/ Powell, Goldstein, Frazer & Murphy LLP
-------------------------------------------
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE>
EXHIBIT 10.28
EXECUTION COPY
================================================================================
CYBERNET INTERNET SERVICES
INTERNATIONAL, INC.
as Company,
and
THE BANK OF NEW YORK
as Trustee, Registrar and
Paying Agent
___________
INDENTURE
Dated as of August 26, 1999
___________
$50,002,183 aggregate accreted value of 13.0% Convertible Senior Subordinated
Discount Notes due 2009
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE................................................... 1
------------------------------------------
1.1 Definitions............................................................................ 1
1.2 Incorporation by Reference of TIA...................................................... 23
1.3 Rules of Construction.................................................................. 23
ARTICLE II
THE NOTES.................................................................................... 24
---------
2.1 Form and Dating........................................................................ 24
2.2 Execution and Authentication........................................................... 25
2.3 Registrar and Paying Agent............................................................. 26
2.4 Paying Agent To Hold Assets in Trust................................................... 26
2.5 List of Holders........................................................................ 26
2.6 Book-Entry Provisions for Global Notes................................................. 27
2.7 Registration of Transfer and Exchange.................................................. 28
2.8 Replacement Notes...................................................................... 33
2.9 Outstanding Notes...................................................................... 33
2.10 Treasury Notes......................................................................... 34
2.11 Temporary Notes........................................................................ 34
2.12 Cancellation........................................................................... 34
2.13 Defaulted Interest..................................................................... 35
2.14 CUSIP, ISIN and Common Code Numbers.................................................... 35
2.15 Deposit of Moneys...................................................................... 35
2.16 Certain Matters Relating to Global Notes............................................... 35
ARTICLE III
REDEMPTION................................................................................... 36
----------
3.1 Optional Redemption.................................................................... 36
3.2 Notices to Trustee..................................................................... 36
3.3 Selection of Notes to Be Redeemed...................................................... 36
3.4 Notice of Redemption................................................................... 36
3.5 Effect of Notice of Redemption......................................................... 38
3.6 Deposit of Redemption Price............................................................ 38
3.7 Notes Redeemed in Part................................................................. 38
ARTICLE IV
COVENANTS.................................................................................... 39
---------
4.1 Payment of Notes........................................................................ 39
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.2 Maintenance of Office or Agency.................................................................. 39
4.3 Limitation on Restricted Payments................................................................ 40
4.4 Limitation on Indebtedness....................................................................... 42
4.5 Corporate Existence.............................................................................. 46
4.6 Payment of Taxes and Other Claims................................................................ 46
4.7 Maintenance of Properties and Insurance.......................................................... 46
4.8 Compliance Certificate; Notice of Default........................................................ 47
4.9 Compliance with Laws............................................................................. 47
4.10 Reports.......................................................................................... 48
4.11 Waiver of Stay; Extension or Usury Laws.......................................................... 49
4.12 Limitation on Transactions with Shareholders and Affiliates...................................... 49
4.13 Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.......... 49
4.14 Limitation on Liens.............................................................................. 51
4.15 Change of Control................................................................................ 51
4.16 Limitation on Asset Sales........................................................................ 52
4.17 Limitation on Issuance of Guarantees of Indebtedness by Restricted Subsidiaries.................. 56
4.18 Business of the Company; Restriction on Transfers of Existing Business........................... 57
4.19 Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries.................. 57
4.20 Additional Amounts............................................................................... 57
4.21 Payment of Non-Income Taxes and Similar Charges.................................................. 58
4.22 Limitation on Layering........................................................................... 58
4.23 Limitation on Investment Company Activities...................................................... 58
ARTICLE V
SUCCESSOR CORPORATION.................................................................................. 59
---------------------
5.1 Consolidation, Merger, and Sale of Assets........................................................ 59
5.2 Successor Corporation Substituted................................................................ 60
ARTICLE VI
DEFAULT AND REMEDIES................................................................................... 60
--------------------
6.1 Events of Default................................................................................ 60
6.2 Acceleration..................................................................................... 61
6.3 Other Remedies................................................................................... 62
6.4 The Trustee May Enforce Claims Without Possession of Securities.................................. 62
6.5 Rights and Remedies Cumulative................................................................... 62
6.6 Delay or Omission Not Waiver..................................................................... 62
6.7 Waiver of Past Defaults.......................................................................... 62
6.8 Control by Majority.............................................................................. 63
6.9 Limitation on Suits.............................................................................. 63
6.10 Rights of Holders To Receive Payment............................................................. 64
6.11 Collection Suit by Trustee....................................................................... 64
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
6.12 Trustee May File Proofs of Claim....................................................... 64
6.13 Priorities............................................................................. 64
6.14 Restoration of Rights and Remedies..................................................... 65
6.15 Undertaking for Costs.................................................................. 65
6.16 Compliance Certificate; Notices of Default............................................. 65
ARTICLE VII
TRUSTEE...................................................................................... 66
-------
7.1 Duties of Trustee...................................................................... 66
7.2 Rights of Trustee...................................................................... 67
7.3 Individual Rights of Trustee........................................................... 68
7.4 Trustee's Disclaimer................................................................... 68
7.5 Notice of Default...................................................................... 69
7.6 Report by Trustee to Holders........................................................... 69
7.7 Compensation and Indemnity............................................................. 69
7.8 Replacement of Trustee................................................................. 70
7.9 Successor Trustee by Merger, etc....................................................... 71
7.10 Corporate Trustee Required; Eligibility................................................ 71
7.11 Disqualification; Conflicting Interests................................................ 72
7.12 Preferential Collection of Claims Against Company...................................... 72
ARTICLE VIII
SATISFACTION AND DISCHARGE OF INDENTURE...................................................... 72
---------------------------------------
8.1 Option to Effect Legal Defeasance or Covenant Defeasance............................... 72
8.2 Legal Defeasance and Discharge......................................................... 72
8.3 Covenant Defeasance.................................................................... 73
8.4 Conditions to Legal or Covenant Defeasance............................................. 73
8.5 Satisfaction and Discharge of Indenture................................................ 75
8.6 Survival of Certain Obligations........................................................ 75
8.7 Acknowledgment of Discharge by Trustee................................................. 75
8.8 Application of Trust Moneys............................................................ 76
8.9 Repayment to the Company; Unclaimed Money.............................................. 76
8.10 Reinstatement.......................................................................... 77
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS.......................................................... 77
-----------------------------------
9.1 Without Consent of Holders of Notes.................................................... 77
9.2 With Consent of Holders of Notes....................................................... 78
9.3 Compliance with TIA.................................................................... 79
9.4 Revocation and Effect of Consents...................................................... 79
9.5 Notation on or Exchange of Notes....................................................... 79
9.6 Trustee to Sign Amendments, etc........................................................ 79
9.7 Senior Indebtedness.................................................................... 80
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE X
CONVERSION............................................................................................................... 80
----------
10.1 Right to Convert; Mandatory Conversion............................................................................ 80
10.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. 81
10.3 Cash Payments in Lieu of Fractional Shares........................................................................ 82
10.4 Conversion Price.................................................................................................. 82
10.5 Adjustment of Conversion Price.................................................................................... 82
10.6 Effect of Reclassification, Consolidation, Merger or Sale......................................................... 87
10.7 Taxes on Shares Issued............................................................................................ 87
10.8 Reservation of Shares; Shares to be Fully Paid.................................................................... 87
10.9 Permanent Reduction of Conversion Ratio upon Certain Registration Defaults........................................ 87
10.10 Definition of Closing Price....................................................................................... 87
ARTICLE XI
SUBORDINATION............................................................................................................ 88
-------------
11.1 Notes Subordinated to Senior Indebtedness......................................................................... 88
11.2 Reliance on Certificate of Liquidating Agent; Further Evidence as to Ownership of Senior Indebtedness............. 92
11.3 Payment Permitted If No Default................................................................................... 92
11.4 Disputes with Holders of Certain Senior Indebtedness.............................................................. 92
11.5 Trustee Not Charged with Knowledge of Prohibition................................................................. 93
11.6 Trustee to Effectuate Subordination............................................................................... 93
11.7 Rights of Trustee as Holder of Senior Indebtedness................................................................ 93
11.8 Article Applicable to Paying Agents............................................................................... 93
11.9 Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness........... 94
11.10 Trustee Not Fiduciary for Holders of Senior Indebtedness.......................................................... 94
11.11 Notice of Acceleration............................................................................................ 94
11.12 Relative Rights................................................................................................... 94
ARTICLE XII
MISCELLANEOUS............................................................................................................ 95
-------------
12.1 TIA Controls...................................................................................................... 95
12.2 Notices........................................................................................................... 95
12.3 Communications by Holders with Other Holders...................................................................... 96
12.4 Certificate and Opinion as to Conditions Precedent................................................................ 96
12.5 Statements Required in Certificate or Opinion..................................................................... 97
12.6 Rules by Trustee, Paying Agent, Registrar......................................................................... 97
12.7 Legal Holidays.................................................................................................... 97
12.8 Governing Law..................................................................................................... 97
12.9 Submission to Jurisdiction; Appointment of Agent for Service; Waiver.............................................. 97
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
12.10 No Adverse Interpretation of Other Agreements........................................................... 98
12.11 No Personal Liability of Directors, Officers, Employees, Stockholders or Incorporators.................. 98
12.12 Currency Indemnity...................................................................................... 99
12.13 Successors.............................................................................................. 99
12.14 Counterpart Originals All parties hereto may sign any number of copies of this Indenture............... 99
12.15 Severability............................................................................................ 99
12.16 Table of Contents, Headings, etc........................................................................ 99
</TABLE>
v
<PAGE>
EXHIBITS
Exhibit A - Form of Global Note
Exhibit B - Form of Definitive Note
NOTE: This Table of Contents shall not, for any purpose, be deemed to be
part of this Indenture.
vi-
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section Indenture Section
<S> <C>
310(a)(1)...................................................................... 7.10
(a)(2)...................................................................... 7.10
(a)(3)...................................................................... NA
(a)(4)...................................................................... NA
(a)(5)...................................................................... 7.8; 7.11
(b)......................................................................... 7.8; 7.11
(c)......................................................................... NA
311(a)......................................................................... 7.12
(b)......................................................................... 7.12
(c)......................................................................... NA
312(a)......................................................................... 2.5
(b)......................................................................... 11.3
(c)......................................................................... 11.3
313(a)......................................................................... 7.6
(b)(1)...................................................................... 11.3
(b)(2)...................................................................... 7.6
(c)......................................................................... 7.6; 11.2
(d)......................................................................... 7.6
314(a)......................................................................... 4.8; 4.10; 11.2; 11.4
(b)......................................................................... 11.2
(c)(1)...................................................................... 7.2; 11.4
(c)(2)...................................................................... 7.2; 11.4
(c)(3)...................................................................... NA
(d)......................................................................... 11.3;11.4; 11.5
(e)......................................................................... 11.5
(f)......................................................................... NA
315(a)......................................................................... 7.1(c)
(b)......................................................................... 7.5; 11.2
(c)......................................................................... 7.1(a)
(d)......................................................................... 6.8; 7.1(c)
(e)......................................................................... 6.15
316(a)(last sentence).......................................................... 2.9
(a)(1)(A)................................................................... 6.8
(a)(1)(B)................................................................... 6.7
(a)(2)...................................................................... NA
(b)......................................................................... 6.10
317(a)(1)...................................................................... 6.11
(a)(2)...................................................................... 6.12
(b)......................................................................... 2.4
</TABLE>
vii-
<PAGE>
<TABLE>
<S> <C>
318(a)............................................................... 11.1
(c)............................................................... 11.1
</TABLE>
- ----------------------
NA means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
viii-
<PAGE>
INDENTURE, dated as of August 26, 1999, between Cybernet Internet Services
International, Inc., a Delaware corporation (the "Company"), and The Bank of New
-------
York, a New York banking corporation, as Trustee, Registrar and Paying Agent.
The Company has duly authorized the creation and issuance of (i) its 13.0%
Convertible Senior Subordinated Discount Notes due 2009 issued on the date
hereof (the "Original Notes") and (ii) Additional Notes (as defined herein) that
--------------
may be issued on any Issue Date (all such notes referred to in (i) and(ii) being
referred to as the "Notes"); and, to provide therefor, the Company has duly
-----
authorized the execution and delivery of this Indenture. Except as otherwise
provided herein, the Notes shall be limited to $100,000,000 in aggregate
principal amount outstanding, of which $93,500,000 in aggregate principal amount
shall be initially issued on the date hereof. Subject to the conditions and
compliance with the covenants set forth herein, the Company may issue up to
$6,500,000 aggregate principal amount of Additional Notes.
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the Notes:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
------------------------------------------
SECTION 1.1 Definitions. For purposes of this Indenture, unless otherwise
-----------
specifically indicated herein, the term "consolidated" with respect to any
Person refers to such Person consolidated with its Restricted Subsidiaries, and
excludes from such consolidation any Unrestricted Subsidiary as if such
Unrestricted Subsidiary were not an Affiliate of such Person. In addition, for
purposes of the following definitions and this Indenture generally, all
calculations and determinations shall be made in accordance with U.S. GAAP and
shall be based upon the consolidated financial statements of the Company and its
subsidiaries prepared in accordance with U.S. GAAP. As used in this Indenture,
the following terms shall have the following meanings:
"Accreted Value" is defined to mean, for any Specified Date, the amount
provided for each $1,000 principal amount at maturity of the Notes:
(a) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth
------------------------
below for such Semi-Annual Accrual Date:
<PAGE>
2
<TABLE>
<CAPTION>
Semi-Annual
Accrual Date Accreted Value
------------ --------------
<S> <C>
February 15, 2000 $ 567.35
August 15, 2000 $ 604.23
February 15, 2001 $ 643.50
August 15, 2001 $ 685.33
February 15, 2002 $ 729.88
August 15, 2002 $ 777.32
February 15, 2003 $ 827.84
August 15, 2003 $ 881.65
February 15, 2004 $ 938.96
August 15, 2004 $1,000.00
</TABLE>
(b) if the Specified Date occurs before the first Semi-Annual Accrual Date,
the Accreted Value will equal the sum of (a) the original issue price and (b) an
amount equal to the product of (1) the Accreted Value for the first Semi-Annual
Accrual Date less the original issue price multiplied by (2) a fraction, the
numerator of which is the number of days from the Issue Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the denominator of which
is the number of days elapsed from the Issue Date to the first Semi-Annual
Accrual Date, using a 360-day year of twelve 30-day months;
(c) if the Specified Date occurs between two Semi-Annual Accrual Dates, the
Accreted Value will equal the sum of (a) the Accreted Value for the Semi-Annual
Accrual Date immediately preceding such Specified Date and (b) an amount equal
to the product of (1) the Accreted Value for the immediately following Semi-
Annual Accrual Date less the Accreted Value for the immediately preceding Semi-
Annual Accrual Date multiplied by (2) a fraction, the numerator of which is the
number of days from the immediately preceding Semi-Annual Accrual Date to the
Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180; or
(d) if the Specified Date occurs after the last Semi-Annual Accrual Date,
the Accreted Value will equal $1000.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or is merged or
consolidated with or into the Company or any Restricted Subsidiary or assumed in
connection with an Asset Acquisition by the Company or a Restricted Subsidiary
and not incurred in connection with, or in anticipation of, such Person becoming
a Restricted Subsidiary, such merger or consolidation or such Asset
<PAGE>
3
Acquisition; provided that Indebtedness of such Person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon the
consummation of the transactions by which such Person becomes a Restricted
Subsidiary or is merged or consolidated with or into the Company or any
Restricted Subsidiary or such Asset Acquisition shall not be Indebtedness.
"Additional Amounts" shall have the meaning set forth in Section 4.20.
"Additional Notes" means up to $6,500,000 aggregate principal amount of
13.0% Senior Subordinated Discount Notes due 2009 issued under the terms of this
Indenture after the Closing Date.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" is defined to mean any Registrar, Paying Agent, Authenticating
Agent or co-Registrar.
"Agent Members" shall have the meaning set forth in Section 2.16.
"Asset Acquisition" is defined to mean (i) any capital contribution (by
means of transfers of cash or other property to others or payments for property
or services for the account or use of others, or otherwise) by the Company or
any Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated, merged with or into the Company
or any Restricted Subsidiary or (ii) an acquisition by the Company or any of its
Restricted Subsidiaries of the property and assets of any Person (other than the
Company or any of its Restricted Subsidiaries) that constitute substantially all
of an operating unit or line of business of such Person or which is otherwise
outside the ordinary course of business.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person (other than the Company or any of its
Restricted Subsidiaries) of (i) all or any of the Equity Interests in any
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or line of business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business (including the
receipt of proceeds paid on account of the loss of or damage to any property or
asset and awards of compensation for any asset taken by condemnation, eminent
domain or similar proceedings). For the purposes of this definition, the term
"Asset Sale" shall not include (a) any transaction consummated in compliance
with Section
<PAGE>
4
5.1 and the creation of any Lien not prohibited by Section 4.14; provided,
however, that any transaction consummated in compliance with such Section 5.1,
involving a sale, conveyance, assignment, transfer, lease or other disposal of
less than all of the properties or assets of the Company and the Restricted
Subsidiaries shall be deemed to be an Asset Sale with respect to the properties
or assets of the Company and Restricted Subsidiaries that are not so sold,
conveyed, assigned, transferred, leased or otherwise disposed of in such
transaction; (b) sales of property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be; (c)
sales of telecommunications network capacity of the Company or any Restricted
Subsidiary including sales of indefeasible rights of use of or transfers of dark
fiber optic transmission cable, in each case in the ordinary course of business;
and (d) any transaction consummated in compliance with Section 4.3. In addition,
solely for purposes of Section 4.16, any sale, conveyance, transfer, lease or
other disposition of any property or asset, whether in one transaction or a
series of related transactions, involving assets with a Fair Market Value not in
excess of (Euro)1.0 million in any fiscal year shall be deemed not to be an
"Asset Sale."
"Asset Sale Offer" shall have the meaning set forth in Section 4.16.
"Authenticating Agent" shall have the meaning set forth in Section 2.2.
"Bankruptcy Law" is defined to mean Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of creditors.
"Board of Directors" is defined to mean the Board of Directors of the
Company.
"Board Resolution" is defined to mean a duly authorized resolution of the
Board of Directors.
"Business Day" is defined to mean a day other than a Saturday, Sunday or
other day on which commercial banking institutions in New York City and Munich,
Germany are authorized or required by law to close.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, including, without
limitation, if such Person is a partnership, partnership interests (whether
general or limited) and any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, such partnership.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with US GAAP, is required to be capitalized and reflected as a liability on the
balance sheet of such Person; and "Capitalized Lease Obligation" is defined to
mean, at the time any determination thereof is to be made, the discounted
present value of the rental obligations under such lease.
<PAGE>
5
"Cash Equivalents" is defined to mean, (a) securities issued or directly
and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof or by the German government or any agency or
instrumentality thereof having maturities of not more than 360 days from the
date of acquisition; (b) overnight bank deposits or certificates of deposit,
eurodollar time deposits and bankers' acceptances with maturities of 360 days or
less from the date of acquisition, in each case with any commercial bank having
capital and surplus in excess of $500 million and outstanding debt rated at
least "A" or the equivalent thereof by S&P or Moody's; (c) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (a) and (b) entered into with any financial
institution meeting the qualifications specified in clause (b) above; (d)
commercial paper rated at least A-1 or P-1, or the equivalent thereof, by S&P or
Moody's, respectively, and in each case maturing within 360 days after the date
of acquisition; and (e) direct obligations of, or obligations fully and
unconditionally guaranteed by, any member of the European Community rated at
least "AAA" or the equivalent thereof by both S&P and Moody's.
"Cedel" is defined to mean Cedelbank, societe anonyme.
"Change of Control" is defined to mean such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
(other than a Permitted Holder) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 35% of the total
voting power of the then outstanding Voting Stock of the Company on a fully
diluted basis, provided that the relevant threshold in the case of Cybermind
Interactive Europe and Holger Timm shall be 40%; (ii) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
of Directors (together with any directors who are members of the Board of
Directors on the date hereof and any new directors whose election by the Board
of Directors or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board of
Directors then still in office who either were members of the Board of Directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of such Board of Directors then in office; (iii) the sale, lease,
transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company to any such "person" or "group"
(other than to a Restricted Subsidiary); or (iv) the merger or consolidation of
the Company with or into another corporation or the merger of another
corporation with or into the Company with the effect that immediately after such
transaction any such "person" or "group" of persons or entities shall have
become the beneficial owner of securities of the surviving corporation of such
merger or consolidation representing a majority of the total voting power of the
then outstanding Voting Stock of the surviving corporation.
"Change of Control Offer" shall have the meaning set forth in Section 4.15.
"Change of Control Payment" shall have the meaning set forth in Section
4.15.
"Change of Control Payment Date" shall have the meaning set forth in
Section 4.15.
<PAGE>
6
"Closing Date" is defined to mean the date of this Indenture.
"Commission" is defined to mean the United States Securities and Exchange
Commission, as from time to time constituted, or, if at any time after the
execution of the Indenture such commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" is defined to mean the authorized common Capital Stock of
the Company, par value $0.001 per share.
"Company" is defined to mean the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter means
such successor.
"Company Order" is defined to mean a written order or request signed in the
name of the Company by two officers of the Company, one of whom must be the
principal executive officer, the principal financial officer, the treasurer or
the principal accounting officer of the Company or any other officer so
authorized and delivered to the Trustee.
"Consolidated Cash Flow" is defined to mean with respect to any Person for
any period, the (i) Consolidated Net Income of such Person for such period plus,
to the extent deducted in computing such Consolidated Net Income (and without
duplication), Consolidated Fixed Charges, (ii) any provision for taxes (other
than taxes (either positive or negative) attributable to extraordinary and
nonrecurring gains or losses or sales of assets), (iii) any amount attributable
to depreciation and amortization expense and (iv) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash charge to the extent
that it requires or represents an accrual of, or reserve for, cash charges in
any future period), less all non-cash items increasing Consolidated Net Income
(excluding any items which represent the reversal of an accrual of, or reserve
for, anticipated cash charges at any prior period), all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in accordance
with US GAAP; provided, however, that there shall be excluded therefrom the
Consolidated Cash Flow (if positive) of any Restricted Subsidiary (calculated
separately for such Restricted Subsidiary in the same manner as provided above)
that is subject to a restriction which prevents the payment of dividends or the
making of distributions to the Company or another Restricted Subsidiary to the
extent of such restriction.
"Consolidated Fixed Charges" is defined to mean, with respect to any Person
for any period, Consolidated Interest Expense plus dividends declared and
payable on Preferred Stock.
"Consolidated Interest Expense" is defined to mean with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including capitalized interest, amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation) calculated in accordance with US GAAP; all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements,
and interest on Indebtedness that is Guaranteed or secured by such Person or any
of its Restricted Subsidiaries, less the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued
<PAGE>
7
or scheduled to be paid or to be accrued by such Person and its Restricted
Subsidiaries during such period; excluding, however, any amount of such interest
of any Restricted Subsidiary to the extent the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Net Income pursuant to
the last proviso of such definition.
"Consolidated Net Income" is defined to mean, for any period, the net
income (or loss) of the Company and its consolidated Restricted Subsidiaries
determined in accordance with US GAAP; provided, however, that there will not be
included in such Consolidated Net Income: (i) any net income (loss) of any
Person if such Person is not a Restricted Subsidiary, except that (a) subject to
the limitations contained in clauses (iv), (v) and (vi) below, the Company's
equity in the net income of any such Person for such period will be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (b) the Company's equity in a net loss of
any such Person (other than an Unrestricted Subsidiary) for such period will be
included in determining such Consolidated Net Income to the extent such loss has
been funded with cash from the Company or a Restricted Subsidiary; (ii) any net
income (loss) of any Person acquired by the Company or a Subsidiary in a pooling
of interests transaction for any period prior to the date of such acquisition;
(iii) any net income (but not loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that (a) subject to the limitations
contained in clauses (iv), (v) and (vi) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period will be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to the Company
or another Restricted Subsidiary as a dividend (subject, in the case of a
dividend to another Restricted Subsidiary, to the limitation contained in this
clause) and (b) the Company's equity in a net loss of any such Restricted
Subsidiary for such period will be included in determining such Consolidated Net
Income; (iv) any gain (loss) realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated Restricted
Subsidiaries which is not sold or otherwise disposed of in the ordinary course
of business and any gain (loss) realized upon the sale or other disposition of
any Capital Stock of any Person; (v) any extraordinary gain or loss; and (vi)
the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" is defined to mean, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of such Person and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of
determination), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of treasury
stock and the principal amount of any promissory notes receivable from the sale
of Equity Interests in the Company or any of its Restricted Subsidiaries, each
item to be determined in conformity with US GAAP (excluding the effects of
foreign currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Conversion Price" has the meaning set forth in Section 10.4.
<PAGE>
8
"Conversion Shares" shall have the meaning set forth in Section 10.1.
"Conversion Ratio" shall have the meaning set forth in Section 10.1.
"Corporate Trust Office" is defined to mean the address of the Trustee
specified in Section 12.2.
"Covenant Defeasance" shall have the meaning set forth in Section 8.3.
"Credit Facilities" is defined to mean one or more senior credit
agreements, senior loan agreements or similar senior facilities with banks or
other institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Cumulative Consolidated Cash Flow" is defined to mean, for the period
beginning on the Issue Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Cash Flow of the Company and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with US GAAP.
"Cumulative Consolidated Fixed Charges" is defined to mean, for the period
beginning on the Issue Date through and including the end of the last fiscal
quarter (taken as one accounting period) preceding the date of any proposed
Restricted Payment, Consolidated Fixed Charges of the Company and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with US GAAP.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement and any other arrangement or agreement designed to
provide protection against fluctuations in currency values.
"Current Market Price" is defined to mean (i) if the security is not
registered under the Exchange Act, the fair market value of the security
(without any discount for lack of liquidity, the amount of such security offered
to be purchased or the fact that such securities may represent a minority
interest in a private company or a company under the control of another Person)
as determined in good faith by the Board of Directors and certified in a board
resolution that is delivered to the Trustee, and determined to be fair, from a
financial point of view, to the holders of such security or another security
exercisable for such security, by an Independent Financial Expert (as set forth
in such Independent Financial Expert's written fairness opinion); or (ii) if the
security is registered under the Exchange Act, the average of the last reported
sale price of the security on the principal exchange on which it trades (or the
equivalent in an over-the-counter market) for each Business Day during the
period commencing 15 Business Days before such date and ending on the date one
day prior to such date, or if the security has been registered under the
Exchange Act for less than 15 consecutive Business Days before such date, the
average of the daily closing bid prices (or such equivalent) for all of the
Business Days before such date for
<PAGE>
9
which daily closing bid prices are available (provided, however, that if the
closing bid price is not determinable for at least 10 Business Days in such
period, the "Current Market Price" of the security shall be determined as if the
security were not registered under the Exchange Act). The Company shall pay the
fees and expenses of any Independent Financial Expert in the determination of
Current Market Price.
"Custodian" is defined to mean any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Default Interest Payment Date" shall have the meaning set forth in Section
2.13.
"Definitive Notes" is defined to mean Notes in definitive registered form
substantially in the form of Exhibit B.
"Designated Senior Indebtedness" under the Notes is defined to mean the
Senior Notes and any Indebtedness constituting Senior Indebtedness that, at the
date of determination, has an aggregate principal amount of, or under which the
holders thereof are committed to lend up to, (Euro)20.0 million and that is
specifically designated by the Company in the instrument creating or evidencing
such Senior Indebtedness as "Designated Senior Indebtedness."
"DTC" is defined to mean The Depository Trust Company or its successors.
"DWAC" is defined to mean the Depositary/Deposit Withdraw at Custodian
system.
"Eligible Accounts Receivable" is defined to mean the accounts receivables
(net of any reserves and allowances for doubtful accounts in accordance with US
GAAP) of any Person that are not more than 60 days past their due date and that
were entered into in the ordinary course of business on normal payment terms as
shown on the most recent consolidated balance sheet of such Person filed with
the Commission, all in accordance with US GAAP.
"Equity Interests" is defined to mean Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Euroclear" is defined to mean Morgan Guaranty Trust Company of New York
(Brussels office), as operator of the Euroclear System.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Excess Proceeds" shall have the meaning set forth in Section 4.16.
"Exchange Act" is defined to mean the United States Securities Exchange Act
of 1934, as amended, or any successor statute, and the rules and regulations
thereunder.
<PAGE>
10
"Fair Market Value" is defined to mean, with respect to any asset or
property, the price (after taking into account any liabilities relating to such
assets) which could be negotiated in an arm's-length free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of
which is under any compulsion to complete the transaction; provided, however,
that the Fair Market Value of any such asset or assets shall be determined
conclusively by the Board of Directors acting in good faith, which determination
shall be evidenced by a resolution of the Board of Directors delivered to the
Trustee and, when required by the express provisions hereof, an Officers'
Certificate filed with the Trustee.
"Global Notes" is defined to mean the Rule 144A Global Note and the
Regulation S Global Note.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof) of any other Person; provided that
the term "Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Holder" is defined to mean a Person in whose name a Note is registered on
the Registrar's books.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Equity Interests in any Person; provided
that none of the accrual of interest, the payment of interest in the form of
additional Indebtedness or the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person,
whether or not contingent (A) in respect of borrowed money, (B) evidenced by
bonds, debentures, notes or other similar instruments or letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto), (C) representing the balance deferred and unpaid of the purchase price
of property or services, which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables, (D)
representing Capitalized Lease Obligations, (ii) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (iii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person, (iv) the maximum fixed redemption or
repurchase price of Redeemable Stock of such Person at the time of determination
and (v) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date
<PAGE>
11
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation;
provided that (x) the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with US GAAP, (y) money
borrowed and set aside at the time of the Incurrence of any Indebtedness for the
sole purpose of prefunding the payment of interest on such Indebtedness (and
which is pledged in favor of the holders of such Indebtedness pending such
application) shall not be deemed to be "Indebtedness" so long as such money is
held to secure the payment of such interest and (z) Indebtedness shall not
include any liability for federal, state, local or other taxes.
"Indenture" is defined to mean this Indenture, as amended, modified or
supplemented from time to time in accordance with the terms hereof.
"Independent Financial Expert" is defined to mean an internationally
recognized investment bank that does not (and the directors, executive officers
and 5% stockholders of which do not) have a direct or indirect financial
interest in the Company or any of its Subsidiaries or Affiliates, which has not
been for at least five years, and at the time it is called upon to give
independent financial advice to the Company is not (and none of its directors,
executive officers or 5% stockholders is), a promoter, director, or officer of
the Company or any of its Subsidiaries or Affiliates. The Independent Financial
Expert may be compensated and indemnified by the Company for opinions or
services it provides as an Independent Financial Expert.
"Initial Purchaser" is defined to mean Morgan Stanley & Co. International
Limited.
"Interest Payment Date" is defined to mean the Stated Maturity of an
installment of interest on the Notes.
"Interest Rate Agreement" is defined to mean any interest rate swap
agreement, interest rate cap agreement, interest rate insurance, and any other
arrangement or agreement designed to provide protection against fluctuations in
interest rates.
"Investment" in any Person is defined to mean any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement but excluding advances to customers in
the ordinary course of business that are, in conformity with US GAAP, recorded
as accounts receivable on the balance sheet of such Person or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other tangible or intangible property to another Person or any payment for any
property or services for the account or use of another Person), or any purchase
or acquisition of Equity Interests, bonds, notes, debentures, or other similar
instruments issued by any other Person. For purposes of the definition of
"Unrestricted Subsidiary" and Sections 4.3 and 4.19, (i) "Investment" shall
include (a) the Fair Market Value of the assets (net of liabilities) of any
Restricted Subsidiary of the Company at the time that such Restricted Subsidiary
of the Company is designated an Unrestricted Subsidiary and shall exclude the
Fair Market Value of the assets (net of liabilities) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
<PAGE>
12
Restricted Subsidiary of the Company and (b) the Fair Market Value, in the case
of a sale of Equity Interests in accordance with Section 4.19 such that a Person
no longer constitutes a Restricted Subsidiary, of the remaining assets (net of
liabilities) of such Person after such sale, and shall exclude the Fair Market
Value of the assets (net of liabilities) of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of
the Company and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its Fair Market Value at the time of such
transfer.
"Issue Date" is defined to mean the date on which the Notes are originally
issued under the Indenture.
"Legal Defeasance" shall have the meaning set forth in Section 8.2.
"Legal Holiday" is defined to mean a Saturday, a Sunday or a day on which
banking institutions in the City of Munich, Germany or The City of New York or a
place of payment are authorized or required by law, regulation or executive
order to remain closed. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind in respect of an asset, whether or not
filed, recorded or otherwise perfected under applicable law (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof, any sale with recourse against the seller or any Affiliate
of the seller, or any option or other agreement to sell or give any security
interest).
"Liquidated Damages" shall have the meaning set forth in the Registration
Rights Agreement.
"Market Criteria" shall have the meaning set forth in Section 10.1.
"Market Criteria Period" shall have the meaning set forth in Section 10.1.
"Maturity Date" is defined to mean August 15, 2009.
"Moody's" is defined to mean Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" is defined to mean, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing agreements), (iii) payments made to repay
Indebtedness or any
<PAGE>
13
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary of the Company as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with US GAAP;
provided that such amounts which cease to be held as reserves shall be deemed
Net Cash Proceeds; and (b) with respect to any issuance or sale of Equity
Interests (other than Redeemable Stock), the proceeds of such issuance or sale
in the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or Cash
Equivalents (except to the extent (1) such obligations are financed, directly or
indirectly, with money borrowed from the Company or any Restricted Subsidiary or
otherwise financed or sold with recourse to the Company or any Restricted
Subsidiary or (2) the purchase of the Equity Interests is otherwise financed,
directly or indirectly, by the Company or any Restricted Subsidiary, including
through funds contributed, extended, guaranteed or otherwise advanced by the
Company or any Affiliate) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Neuer Markt" is defined to mean the Neuer Markt of the Frankfurt Stock
Exchange.
"Notes" shall have the meaning set forth in the preamble of this Indenture.
"Offer Amount" shall have the meaning set forth in Section 4.16.
"Offer Period" shall have the meaning set forth in Section 4.16.
"Officer" is defined to mean, with respect to any Person (other than any
Agent), the Chairman of the Board, any Director, the Chief Executive Officer,
the President, any Vice President, the Chief Financial Officer, the Treasurer,
the Assistant Treasurer, the Controller or the Secretary of such Person.
"Officers' Certificate" is defined to mean a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company that meets the requirements set
forth in Sections 12.4 and 12.5 of the Indenture.
"Opinion of Counsel" is defined to mean a written opinion from legal
counsel which and who are reasonably acceptable to, and addressed to, the
Trustee complying with the requirements of Sections 11.4 and 11.5. Unless
otherwise required by the TIA, the legal counsel may be an employee of or
counsel to the Company.
"Original Notes" shall have the meaning set forth in the preamble to this
Indenture.
<PAGE>
14
"Paying Agent" shall have the meaning set forth in Section 2.3.
"Permitted Assets" is defined to mean, with respect to any Person, assets
used in the Permitted Business (or Equity Interests of a Person that becomes a
Restricted Subsidiary, the assets of which consist principally of such Permitted
Assets) that are purchased or acquired by the Company or a Restricted Subsidiary
after the Issue Date.
"Permitted Business" is defined to mean the business of (i) operating an
Internet connectivity or internet enhancement service as it may exist from time
to time, including, without limitation, providing dial up or dedicated internet
service, web hosting or co-location services, security solutions, configuration
services, electronic commerce, intranet solutions, data backup and restoral,
business content and collaboration or consulting services with respect to the
foregoing (including, without limitation, any business conducted by the Company
or any Restricted Subsidiary on the Issue Date), (ii) transmitting or providing
services relating to the transmission of, voice, video or data through owned or
leased transmission facilities, (iii) constructing, creating, developing,
providing or marketing communications-related network equipment, products,
software and other devices for use in an Internet or telecommunications
business, or (iv) evaluating, participating in or pursuing any other activity or
opportunity that is primarily related to those identified in clause (i), (ii) or
(iii) above. A good faith determination by a majority of the Board of Directors
as to whether a business meets the requirements of this definition shall be
conclusive, absent manifest error.
"Permitted Holder" is defined to mean Andreas Eder, Alessandro Giacalone
and any Affiliate of the foregoing Persons.
"Permitted Investment" is defined to mean (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, the Company or a Restricted
Subsidiary; (ii) payroll, travel and similar advances to cover matters that are
expected at the time of such advance ultimately to be treated as expenses in
accordance with US GAAP; (iii) stock, obligations or securities received (a) in
satisfaction of judgments or (b) in settlement of debts, or as a result of
foreclosure, perfection or enforcement of any Lien, in each case under this
clause (b) arising in the ordinary course of business and not in contemplation
of the acquisition of such stock, obligations or securities; (iv) Investments in
Cash Equivalents; (v) Investments made as a result of the receipt of noncash
consideration from any Asset Sale made in compliance with Section 4.16; (vi)
Investments in negotiable instruments held for collection, lease, utility and
workers' compensation, performance and other similar pledges or deposits, and
other pledges or deposits permitted under Section 4.14; (vii) obligations under
Interest Rate Agreements or Currency Agreements; provided that such agreements
(a) are designed solely to protect the Company or the Restricted Subsidiary, as
the case may be, against fluctuations in foreign currency exchange rates or
interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; (viii) Investments made in the ordinary course
of business and on ordinary business terms in the Permitted Business in
consortia formed to construct transmission infrastructure for use primarily in
the Permitted Business, provided such Investment
<PAGE>
15
entitles the Company to rights of way or rights of use on such transmission
infrastructure; and (ix) any Investment purchased by the Company and deposited
in an escrow account established in connection with the issuance of any Senior
Indebtedness of the Company that is pari passu with the Senior Notes.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with US GAAP shall have been made; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with US GAAP shall have been made; (iii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or other
similar legislation and other insurance-related obligations (including, without
limitation, pledges or deposits securing liability to insurance carriers under
insurance or self-insurance arrangements); (iv) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries; (v)
Liens (including extensions and renewals thereof) upon real or personal property
of a Restricted Subsidiary purchased or leased after the Issue Date; provided
that (a) such Lien is created solely for the purpose of securing Indebtedness
Incurred by such Restricted Subsidiary in compliance with Sections 4.4 and 4.17
(1) to finance the cost of the item of property or assets subject thereto and
such Lien is created prior to, at the time of or within six months after the
later of the acquisition and the Incurrence of such Indebtedness or (2) to
refinance any Indebtedness of a Restricted Subsidiary previously so secured, (b)
the principal amount of the Indebtedness secured by such Lien does not exceed
100% of such cost and (c) any such Lien shall not extend to or cover any
property or assets other than such item of property or assets; (vi) any interest
or title of a lessor in the property subject to any Capitalized Lease or
operating lease of a Restricted Subsidiary which, in each case, is permitted
under this Indenture; (vii) Liens on property of, or on Equity Interests in or
Indebtedness of, any Person existing at the time such Person becomes, or becomes
a part of, any Restricted Subsidiary; provided that such Liens were not created,
incurred or assumed in contemplation of such transaction and do not extend to or
cover any property or assets of the Company or any Restricted Subsidiary other
than the property or assets so acquired; (viii) Liens arising from the rendering
of a final judgment or order against the Company or any Restricted Subsidiary of
the Company that does not give rise to an Event of Default; (ix) Liens
encumbering customary initial deposits and margin deposits and other Liens that
are either within the general parameters customary in the industry or incurred
in the ordinary course of business, in each case, securing Indebtedness under
Interest Rate Agreements and Currency Agreements; (x) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Issue Date; (xi) Liens
existing on the Issue Date or securing the Notes or any Guarantee of the Notes;
(xii) Liens granted after the Issue Date on any assets or Equity
<PAGE>
16
Interests in the Company or its Restricted Subsidiaries created in favor of the
holders; (xiii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or another Restricted
Subsidiary to secure Indebtedness owing to the Company or such Restricted
Subsidiary and Incurred in compliance with clause (ii) of paragraph (b) of
Section 4.4; (xiv) Liens created in connection with the incurrence of any
Indebtedness permitted to be Incurred under clause (iii) of paragraph (b) of
Section 4.4; provided that the Indebtedness which it refinances is secured by
similar Liens; (xv) Liens securing Indebtedness under Credit Facilities incurred
in compliance with clause (viii) of paragraph (b) of Section 4.4; (xvi) Liens
securing other Senior Indebtedness of the Company; (xvii) Liens incurred or
deposits made to secure the performance of tenders, bids, leases, subleases,
licenses, sublicenses, obligations for utilities, statutory or regulatory
obligations, bankers' acceptances, letters of credit, surety and appeal bonds,
government or other contracts, completion guarantees, performance and return-of-
money bonds and other obligations of a similar nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed money);
(xviii) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the importation of
goods; and (xix) Liens with respect to an escrow account established in
connection with the issuance of any Senior Indebtedness which are pari passu
with the Senior Notes.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PIK Notes" is defined to mean the 13.0% Convertible Senior Subordinated
Pay-In-Kind Notes due 2009 of the Company that are being offered simultaneously
herewith, if any are issued.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) which is preferred as to the payment of dividends
or distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over Equity Interests of
any other class in such Person.
"Private Placement Legend" is defined to mean the legend set forth in
Section 2.7(g).
"Pro forma Consolidated Cash Flow" is defined to mean with respect to any
Person for any period, the Consolidated Cash Flow of such Person for such period
calculated on a pro forma basis to give effect to any Asset Sale or Asset
Acquisition (including acquisitions of other Persons by merger, consolidation or
purchase of Equity Interests) during such period as if such Asset Sale or Asset
Acquisition had taken place on the first day of such period and income (or
losses) ceased to accrue or accrued, as the case may be, therefrom from such
date.
"Purchase Date" shall have the meaning set forth in Section 4.16.
"Qualified Institutional Buyer" or "QIB" shall have the meaning specified
in Rule 144A under the Securities Act.
<PAGE>
17
"Record Date" is defined to mean the Record Dates specified in the Notes.
"Redeemable Stock" is defined to mean, with respect to any Person, any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Redeemable Stock or (iii) is redeemable or must be purchased, upon the
occurrence of certain events or otherwise, by such Person at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to purchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Notes shall not constitute Redeemable Stock if (x) the "asset sale" or "change
of control" provisions applicable to such Capital Stock are not more favorable
to the holders of such Capital Stock than the terms applicable to the Notes and
described under Section 4.15 and Section 4.16 and (y) any such requirement only
becomes operative after compliance with such terms applicable to the Notes
including the purchase of any Notes tendered pursuant thereto.
"Redemption Date" when used with respect to any Note to be redeemed, is
defined to mean the date fixed for such redemption pursuant to this Indenture
and Paragraphs 8 and 9 of the Notes.
"Redemption Price" when used with respect to any Note to be redeemed, is
defined to mean the price fixed for such redemption pursuant to this Indenture
and Paragraphs 8 and 9 of the Notes.
"Registrar" shall have the meaning set forth in Section 2.3.
"Registration Rights Agreement" is defined to mean that certain
Registration Rights Agreement, dated the date hereof, between the Company and
the Trustee.
"Regulation S" is defined to mean Regulation S under the Securities Act.
"Regulation S Global Note" shall have the meaning set forth in Section 2.1.
"Regulation S Notes" shall have the meaning set forth in Section 2.1.
"Relevant Taxing Jurisdiction" shall have the meaning set forth in Section
4.20.
"Replacement Assets" is defined to mean any property, plant or equipment of
a nature or type that are used or usable in the Permitted Business (as
determined in good faith by the Board of Directors, whose determination shall be
evidenced by a Board Resolution).
"Restricted Period" shall have the meaning set forth in Section 2.7(c).
<PAGE>
18
"Restricted Subsidiary" is defined to mean, at any time, any direct or
indirect Subsidiary of the Company that is not then an Unrestricted Subsidiary.
"Rule 144" is defined to mean Rule 144 (including any successor regulation
thereto) under the Securities Act, as it may be amended from time to time.
"Rule 144A" is defined to mean Rule 144A (including any successor
regulation thereto) under the Securities Act, as it may be amended from time to
time.
"Rule 144A Global Note" shall have the meaning set forth in Section 2.1.
"Rule 144A Notes" shall have the meaning set forth in Section 2.1.
"S&P" is defined to mean Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, and its successors.
"Securities Act" is defined to mean the United States Securities Act of
1933, as amended, or any successor statute, and the rules and regulations
thereunder.
"Senior Indebtedness" is defined to mean the following obligations of the
Company, whether outstanding on the date of the Indenture or thereafter
Incurred: (i) all Indebtedness and all other monetary obligations of the Company
under the Senior Notes; (ii) all other Indebtedness of the Company other than
the Notes and the PIK Notes, if any (including, without limitation, Indebtedness
Incurred under Credit Facilities), including principal and interest on such
Indebtedness, unless such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, is pari
passu with, or subordinated in right of payment to, the Notes; and (iii) all
fees, expenses and indemnities payable in connection with the Senior Notes
(including any agreement pursuant to which the Senior Notes were issued);
provided that the term "Senior Indebtedness" shall not include (a) any
Indebtedness of the Company that, when Incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code, was without
recourse to the Company, (b) any Indebtedness of the Company to a Subsidiary of
the Company or a joint venture in which the Company has an interest, (c) any
Indebtedness of the Company, to the extent not permitted under the Indenture,
(d) any repurchase, redemption or other obligation in respect of Redeemable
Stock, (e) any Indebtedness to any employee of the Company or one of its
Subsidiaries, (f) any liability under federal, state, local, foreign or other
taxes owed or owing by the Company, (g) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities) or (h) any
Indebtedness, guarantee or obligation of the Company that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of the Company, including without limitation, any Senior
Subordinated Indebtedness and Subordinated Obligations. Senior Indebtedness will
also include interest accruing subsequent to events of bankruptcy of the Company
and its Subsidiaries at the rate provided for in the document governing such
Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under federal bankruptcy
law.
<PAGE>
19
"Senior Notes" is defined to mean the 14.0% Senior Notes due 2009 of the
Company, issued on July 8, 1999.
"Senior Subordinated Indebtedness" is defined to mean the Notes and any
other Indebtedness of the Company, including, without limitation, any PIK Notes,
that specifically provides that such Indebtedness is to rank equally with the
Notes in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Company which is not
Senior Indebtedness.
"Significant Subsidiary" is defined to mean, at any time of determination,
any Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Specified Date" is defined to mean any redemption date, any date of
purchase for any purchase of the Notes pursuant to Section 4.16 or Section 4.15,
any date of conversion or exchange of Notes or any date on which the Notes are
due and payable after an Event of Default.
"Stated Maturity" is defined to mean, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subordinated Obligations" is defined to mean any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" is defined to mean, with respect to any Person (i) any
corporation, association or other business entity of which more than 50% of the
outstanding Voting Stock is at the time of determination owned, directly or
indirectly, by such Person or one or more other Subsidiaries of such Person and
(ii) any partnership, joint venture, limited liability company or similar entity
of which (A) more than 50% of the capital accounts, distribution rights, total
equity and voting interests or general or limited partnership interests, as
applicable, are owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person or a combination thereof
whether in the form of membership, general, special or limited partnership or
otherwise and (B) such Person or any Restricted Subsidiary of such Person is a
controlling general partner, co-venturer, manager or is in a similar position or
otherwise controls such entity.
"Successor Company" shall have the meaning set forth in Section 5.1.
"Taxes" shall have the meaning set forth in Section 4.20.
<PAGE>
20
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb), as it may be amended from time to time.
"Trade Payables" is defined to mean any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by the Company or any of its Restricted Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods and
services.
"Trading Day" is defined to mean, so long as the Common Stock trades on the
Neuer Markt, a day on which such exchange is open for the transaction of
business, or, if the Common Stock ceases to trade on the Neuer Markt, a day on
which the principal national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of business, or, if
the Common Stock is not so listed or admitted to trading on any national
securities exchange, a day on which the Nasdaq National Market System (or any
successor thereto) or such other system then in use is open for the transaction
of business, or, if the Common Stock is not quoted by any such organization, any
day other than a Saturday, Sunday or a day on which banking institutions in the
State of New York are authorized or obligated by law or executive order to
close.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Trust Officer" is defined to mean any officer within the corporate trust
department (or any successor group of the Trustee), including any vice
president, assistant vice president, corporate trust officer, assistant
corporate trust officer, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his or her knowledge of and
familiarity with the particular subject and who shall have direct responsibility
for the administration of this Indenture.
"Trustee" is defined to mean the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company which at the time of determination is an Unrestricted Subsidiary (as
designated by the Board of Directors in the manner provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary, or any of its Subsidiaries, owns any Equity Interests or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (a) the Company certifies in an
Officers' Certificate that such designation complies with the covenants
described under Section 4.3, (b) such Subsidiary is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the
<PAGE>
21
Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might reasonably be obtained in a comparable arm's-length
transaction at the time from Persons who are not Affiliates of the Company, (c)
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (1) to subscribe for additional Equity Interests in such
Subsidiary or any Subsidiary of such Subsidiary or (2) to maintain or preserve
such Subsidiary's financial condition or to cause such Subsidiary to achieve any
specified levels of operating results and (d) such Subsidiary and its
Subsidiaries have not at the time of designation, and do not thereafter, Incur
any Indebtedness other than Unrestricted Subsidiary Indebtedness. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; provided that immediately after giving effect to such
designation (x) the Company could Incur 1.00 of additional Indebtedness under
Section 4.4(a) on a pro forma basis taking into account such designation and (y)
no Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Unrestricted Subsidiary Indebtedness" is defined to mean Indebtedness of
any Unrestricted Subsidiary (i) as to which neither the Company nor any
Restricted Subsidiary is directly or indirectly liable (by virtue of the Company
or any such Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), and (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any Restricted Subsidiary to
declare, a default on such Indebtedness of the Company or any Restricted
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"US GAAP" is defined to mean, at any date of determination, generally
accepted accounting principles as in effect in the United States of America
which are applicable at the date of determination and which are consistently
applied for all applicable periods.
"U.S. Government Securities" is defined to mean direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
obligations or guarantee the full faith and credit of the United States is
pledged and are not callable or redeemable at the option of the issuer thereof.
"U.S. Person" means a "U.S. person" as defined in Rule 902 under the
Securities Act or any successor to such Rule.
"Voting Stock" is defined to mean with respect to any Person, Capital Stock
of any class or kind ordinarily entitled to vote for the election of directors
thereof at a meeting of Stockholders called for such purpose, without the
occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" is defined to mean, at any date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) (a) the sum of the products
<PAGE>
22
of the number of years from such date of determination to the dates of each
successive scheduled principal payment of, or redemption or similar payment with
respect to, such Indebtedness multiplied by (b) the amount of such principal
payment, by (ii) the sum of all such principal payments.
"Wholly Owned Restricted Subsidiary" is defined to mean any Restricted
Subsidiary all of the outstanding voting Equity Interests (other than directors'
qualifying shares) of which are owned, directly or indirectly, by the Company.
SECTION 1.2 Incorporation by Reference of TIA. This Indenture is subject to
---------------------------------
the mandatory provisions of the TIA which as of the date hereof and thereafter
as in effect are incorporated by reference in, and made a part of, this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.3 Rules of Construction. Unless the context otherwise requires:
---------------------
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it
in accordance with U.S. GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in the plural
include the singular;
(e) provisions apply to successive events and transactions; and
(f) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision.
<PAGE>
23
ARTICLE II
THE NOTES
---------
SECTION 2.1 Form and Dating. The Notes and the notation relating to the
---------------
Trustee's certificate of authentication thereof, shall be substantially in the
form of Exhibits A or B, as applicable. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company and the
Trustee shall approve the form of the Notes and any notation, legend or
endorsement on them. Each Note shall be dated the date of its issuance and shall
show the date of its authentication.
The terms and provisions contained in the Notes, annexed hereto as Exhibits
A and B shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby. The Notes will initially be represented by
the Global Notes.
Notes offered and sold in their initial distribution in reliance on Rule
144A shall be initially issued as one or more global notes in registered, global
form without interest coupons, substantially in the form of Exhibit A hereto,
with such applicable legends as are provided in Exhibit A, except as otherwise
permitted herein. Such Global Notes shall be referred to collectively herein as
the "Rule 144A Global Note." Such Rule 144A Global Notes shall be deposited on
---------------------
behalf of the holders of the Notes represented thereby by the Trustee, at its
New York office, as custodian for DTC, duly executed by the Company and
authenticated by the Trustee or an Authenticating Agent as provided herein. The
aggregate principal amount of the Rule 144A Global Note may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for DTC, or the records of DTC or its nominee, as the case may be, as
hereinafter provided (or by the issue of a further Rule 144A Global Note), in
connection with a corresponding decrease or increase in the aggregate principal
amount of the Regulation S Global Note or in consequence of the issue of
Definitive Notes or additional Rule 144A Notes, as hereinafter provided. The
Rule 144A Global Note and all other Notes, if any, evidencing the debt, or any
portion of the debt, initially evidenced by such Rule 144A Global Note, shall
collectively be referred to herein as the "Rule 144A Notes."
---------------
Notes offered and sold in their initial distribution in reliance on
Regulation S shall be initially issued as one or more global notes, in
registered global form without interest coupons, substantially in the form of
Exhibit A hereto, with such applicable legends as are provided in Exhibit A
hereto, except as otherwise permitted herein. Such Global Notes, as the case
may be, shall be referred to collectively herein as the "Regulation S Global
-------------------
Note." Such Regulation S Global Note shall be deposited on behalf of the
- ----
holders of the Notes represented thereby with the Trustee, at its New York
office, as custodian for DTC, and registered in the name of DTC or its nominee,
duly executed by the Company and authenticated by the Trustee or an
Authenticating Agent as provided herein, for credit to the accounts of the
respective depositaries for Euroclear and Cedel (or such other accounts as they
may direct). The aggregate principal amount of the Regulation S Global Note may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for DTC, or the records of DTC or its nominee, as
the
<PAGE>
24
case may be, as hereinafter provided (or by the issue of a further Regulation S
Global Note), in connection with a corresponding decrease or increase in the
aggregate principal amount of the Rule 144A Global Note or in consequence of the
issue of Definitive Notes or additional Regulation S Notes, as hereinafter
provided. The Regulation S Global Note and all other Notes that are not Rule
144A Global Notes shall collectively be referred to herein as the "Regulation S
------------
Notes".
- -----
SECTION 2.2 Execution and Authentication. Two Officers shall sign, or one
----------------------------
Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Notes for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Note was an Officer at the time of
such execution but no longer holds that office or position at the time the
Trustee authenticates the Note, the Note shall be valid nevertheless.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
Except as otherwise provided herein, the aggregate principal amount of
Notes which may be outstanding at any time under this Indenture is $100,000,000.
The Trustee shall authenticate an aggregate principal amount of Notes not to
exceed $100,000,000 for issuance, which shall consist of (i) Original Notes for
original issue on the Closing Date in the aggregate principal amount not to
exceed $93,500,000.00 and (ii) Additional Notes from time to time for issue in
an aggregate principal amount not to exceed $6,500,000.00, which may be issued
by the Company after the Closing Date. Additional Notes will be treated as the
same series of Notes as the Original Notes for all purposes under this
Indenture, including, without limitation, for purposes of waivers, amendments,
redemptions and offers to purchase. The Officers' Certificate shall specify the
aggregate principal amount of Notes to be authenticated, the series and type of
Notes, the date on which the Notes are to be authenticated, the issue price,
whether the Notes are to be Original Notes or Additional Notes, whether the
Notes are to be issued as Definitive Notes or Global Notes and whether or not
the Notes shall bear the Private Placement Legend, or such other information as
the Trustee may reasonably request. In authenticating the Notes and accepting
the responsibilities under this Indenture in relation to the Notes, the Trustee
shall be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel stating that the form and terms thereof have been established
in conformity with the provisions of this Indenture. Upon receipt of a Company
Order, the Trustee shall authenticate Notes in substitution of Notes originally
issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent ("Authenticating Agent")
--------------------
reasonably acceptable to the Company to authenticate Notes. Unless otherwise
provided in the appointment, an Authenticating Agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Company and Affiliates of the Company.
<PAGE>
25
The Notes shall be issuable only in denominations of $1,000 and any
integral multiple thereof.
SECTION 2.3 Registrar and Paying Agent. The Company shall maintain an
--------------------------
office or agency in the Borough of Manhattan, The City of New York and, if and
so long as the Notes are listed, admitted or eligible for trading on a stock
exchange or trading market in whatever location the rules of such stock exchange
or trading market so require, where (i) Global Notes may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (ii)
---------
Global Notes may be presented or surrendered for payment ("Paying Agent") and
------------
(iii) notices and demands in respect of such Global Notes and this Indenture may
be served. In the event that Definitive Notes are issued, (x) Definitive Notes
may be presented or surrendered for registration of transfer or for exchange,
(y) Definitive Notes may be presented or surrendered for payment and (z) notices
and demands in respect of the Definitive Notes and this Indenture may be served
at an office of the Registrar or the Paying Agent, as applicable, in the Borough
of Manhattan, The City of New York. The Registrar shall keep a register of the
Notes and of their transfer and exchange. The Company, upon notice to the
Trustee, may have one or more co-Registrars and one or more additional Paying
Agents. The term "Registrar" includes any co-Registrar and the term "Paying
Agent" includes any additional Paying Agent. The Company initially appoints The
Bank of New York as Registrar and Paying Agent until such time as The Bank of
New York has resigned or a successor has been appointed. The Company may change
any Registrar or Paying Agent without notice to any Holder. Payment of Accreted
Value and principal will be made upon the surrender of Definitive Notes at the
office of the Paying Agent. In the case of a transfer of a Definitive Note in
part, upon surrender of the Definitive Note to be transferred, a Definitive Note
shall be issued to the transferee in respect of the principal amount transferred
and a Definitive Note shall be issued to the transferor in respect of the
balance of the principal amount of the transferred Definitive Note at the office
of any transfer agent.
SECTION 2.4 Paying Agent To Hold Assets in Trust. The Company shall require
------------------------------------
each Paying Agent other than the Trustee to agree in writing that each Paying
Agent shall hold in trust for the benefit of Holders or the Trustee all assets
held by the Paying Agent for the payment of Accreted Value or principal of or
interest, if any, Additional Amounts, if any, Liquidated Damages, if any,
premium, if any, or interest on, the Notes, and shall notify the Trustee of any
Default by the Company in making any such payment. The Company at any time may
require a Paying Agent to distribute all assets held by it to the Trustee and
account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent, the
Paying Agent shall have no further liability for such assets.
SECTION 2.5 List of Holders. The Trustee shall preserve in as current a
---------------
form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders. If the Trustee is not the Registrar, the Company
shall furnish to the Trustee before each Record Date and at such other times as
the Trustee may request in writing a list as of such date and in such form as
the Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
<PAGE>
26
SECTION 2.6 Book-Entry Provisions for Global Notes. (a) The Global Notes
--------------------------------------
initially shall (i) be registered in the name of DTC or the nominee of such
depositary, (ii) be delivered to the Trustee as custodian for such depositary
and (iii) bear legends as set forth in Section 2.7(g) hereto.
(b) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding
-----------------------------------------------------
any other provisions of this Indenture, a Global Note may not be transferred as
a whole except by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another successor of DTC or a nominee of such successor depositary. Interests of
beneficial owners in the Global Notes may be transferred or exchanged for
Definitive Notes in accordance with the rules and procedures of DTC and the
provisions of Section 2.7. All Global Notes shall be exchanged by the Company
(with authentication by the Trustee) for one or more Definitive Notes, if (a)
any of DTC, Euroclear and Cedel (i) has notified the Company that it is
unwilling or unable to continue as a clearing agency, or (in the case of DTC)
ceases to be a clearing agency registered under the Exchange Act and (ii) a
successor to DTC, Euroclear or Cedel, as the case may be, that (in the case of
DTC) is registered as a clearing agency under the Exchange Act, is not able to
be appointed by the Company within 90 days of such notification or (b) at any
time at the option of the Company. If an Event of Default occurs and is
continuing, the Company shall, at the request of the Holder thereof, exchange
all or part of a Global Note for one or more Definitive Notes (with
authentication by the Trustee); provided, however, that the principal amount at
maturity of such Definitive Notes and such Global Note after such exchange shall
be $1,000 or integral multiples thereof. Whenever all of a Global Note is
exchanged for one or more Definitive Notes, it shall be surrendered by the
Holder thereof to the Trustee for cancellation. Whenever a part of a Global Note
is exchanged for one or more Definitive Notes, the Global Note shall be
surrendered by the Holder thereof to the Trustee who shall cause an adjustment
to be made to Schedule A of such Global Note such that the principal amount of
such Global Note will be equal to the portion of such Global Note not exchanged
and shall thereafter return such Global Note to such Holder. A Global Note may
not be exchanged for a Definitive Note other than as provided in this Section
2.6(b).
(c) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b) of this Section 2.6, the Global
Notes shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall upon written instructions from the
Company authenticate and make available for delivery, to each beneficial owner
in exchange for its beneficial interest in the Global Notes, an equal aggregate
principal amount of Definitive Notes of authorized denominations.
(d) Any Definitive Note constituting a Rule 144A Note delivered in exchange
for an interest in a Global Note pursuant to paragraph (b) of this Section 2.6
shall, except as otherwise provided by Section 2.8, bear the Private Placement
Legend.
SECTION 2.7 Registration of Transfer and Exchange. (a) Notwithstanding any
-------------------------------------
provision to the contrary herein, so long as a Note remains outstanding,
transfers of beneficial interests in Global Notes or transfers of Definitive
Notes, in whole or in part, shall be made only in accordance with this Section
2.7.
<PAGE>
27
(b) Rule 144A Global Note to Regulation S Global Note. If a holder of a
-------------------------------------------------
beneficial interest in the Rule 144A Global Note wishes at any time to exchange
its interest in such Rule 144A Global Note for an interest in the Regulation S
Global Note, or to transfer its interest in such Rule 144A Global Note to a
Person who wishes to take delivery thereof in the form of an interest in such
Regulation S Global Note, such holder may, subject to the rules and procedures
of DTC, Euroclear and Cedel, to the extent applicable, and to the requirements
set forth in the following sentence, exchange or cause the exchange or transfer
or cause the transfer of such interest for an equivalent beneficial interest in
such Regulation S Global Note. Upon receipt by the Trustee, as transfer agent,
at its office in The City of New York of (1) instructions given in accordance
with the procedures of DTC, Euroclear and Cedel, to the extent applicable, from
or on behalf of a holder of a beneficial interest in the Rule 144A Global Note,
directing the Trustee (via DWAC), as transfer agent, to credit or cause to be
credited a beneficial interest in the Regulation S Global Note in an amount
equal to the beneficial interest in the Rule 144A Global Note to be exchanged or
transferred, (2) a written order given in accordance with the procedures of DTC,
Euroclear or Cedel, to the extent applicable, containing information regarding
the Euroclear or Cedel account to be credited with such increase and the name of
such account, and (3) a certificate in the form of Exhibit C given by the holder
of such beneficial interest stating that the exchange or transfer of such
interest has been made pursuant to and in accordance with Rule 904 of Regulation
S or Rule 144A under the Securities Act, the Trustee, as transfer agent, shall
promptly deliver appropriate instructions (via DWAC) to DTC, its nominee, or the
custodian for DTC, as the case may be, to reduce or reflect on its records a
reduction of the Rule 144A Global Note by the aggregate principal amount of the
beneficial interest in such Rule 144A Global Note to be so exchanged or
transferred from the relevant participant, and the Trustee, as transfer agent,
shall promptly deliver appropriate instructions (via DWAC) to DTC, its nominee,
or the custodian for DTC, as the case may be, concurrently with such reduction,
to increase or reflect on its records an increase of the principal amount of
such Regulation S Global Note by the aggregate principal amount of the
beneficial interest in such Rule 144A Global Note to be so exchanged or
transferred, and to credit or cause to be credited to the account of the Person
specified in such instructions (who shall be the agent member of Euroclear or
Cedel, or both, as the case may be) a beneficial interest in such Regulation S
Global Note equal to the reduction in the principal amount of such Rule 144A
Global Note.
(c) Regulation S Global Note to Rule 144A Global Note. If a holder of a
-------------------------------------------------
beneficial interest in the Regulation S Global Note wishes at any time to
exchange its interest in such Regulation S Global Note for an interest in the
Rule 144A Global Note, or to transfer its interest in such Regulation S Global
Note to a Person who wishes to take delivery thereof in the form of an interest
in such Rule 144A Global Note, such holder may, subject to the rules and
procedures of Euroclear, Cedel or DTC, to the extent applicable, and to the
requirements set forth in the following sentence, exchange or cause the exchange
or transfer or cause the transfer of such interest for an equivalent beneficial
interest in such Rule 144A Global Note. Upon receipt by the Trustee, as transfer
agent, at its office in The City of New York of (l) instructions given in
accordance with the procedures of Euroclear, Cedel or DTC, to the extent
applicable, from or on behalf of a beneficial owner of an interest in the
Regulation S Global Note directing the Trustee, as transfer agent, to credit or
cause to be credited a beneficial interest in the Rule 144A Global Note in an
amount equal to the beneficial interest in the Regulation S Global Note to be
exchanged or transferred, (2) a written order given in accordance with the
procedures of
<PAGE>
28
Euroclear, Cedel or DTC, as the case may be, containing information regarding
the account with Euroclear, Cedel or DTC to be credited with such increase and
the name of such account, and (3) prior to or on the 40th day after the later of
the commencement of the offering of the Notes and the Closing Date (the
"Restricted Period"), a certificate in the form of Exhibit D given by the holder
-----------------
of such beneficial interest and stating that the Person transferring such
interest in such Regulation S Global Note reasonably believes that the Person
acquiring such interest in such Rule 144A Global Note is a Qualified
Institutional Buyer (as defined in Rule 144A) and is obtaining such beneficial
interest in a transaction meeting the requirements of Rule 144A and any
applicable securities laws of any state of the United States or any other
jurisdiction, the Trustee, as transfer agent, shall promptly deliver (via DWAC)
appropriate instructions to DTC, its nominee, or the custodian for DTC, as the
case may be, to reduce or reflect on its records a reduction of the Regulation S
Global Note by the aggregate principal amount of the beneficial interest in such
Regulation S Global Note to be exchanged or transferred, and the Trustee, as
transfer agent, shall promptly deliver (via DWAC) appropriate instructions to
DTC, its nominee, or the custodian for DTC, as the case may be, concurrently
with such reduction, to increase or reflect on its records an increase of the
principal amount of such Rule 144A Global Note by the aggregate principal amount
of the beneficial interest in such Regulation S Global Note to be so exchanged
or transferred, and to credit or cause to be credited to the account of the
Person specified in such instructions a beneficial interest in such Rule 144A
Global Note equal to the reduction in the principal amount of such Regulation S
Global Note. After the expiration of the Restricted Period, the certification
requirement set forth in clause (3) of the second sentence of this Section
2.7(c) will no longer apply to such transfers.
(d) Any beneficial interest in one of the Global Notes that is transferred
to a Person who takes delivery in the form of an interest in the other Global
Note will, upon transfer, cease to be an interest in such Global Note and become
an interest in the other Global Note and, accordingly, will thereafter be
subject to all transfer restrictions and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
(e) Other Exchanges. In the event that a Global Note is exchanged for
---------------
Definitive Notes in registered form without interest coupons, pursuant to
Section 2.6(b), or a Definitive Note is exchanged for a beneficial interest in a
Global Note, such Notes may be exchanged or transferred for one another only in
accordance with such procedures as are substantially consistent with the
provisions of Sections 2.6 and 2.7 herein and as may be from time to time
adopted by the Company and the Trustee.
(f) Interests in Regulation S Global Notes to be held through Euroclear and
-----------------------------------------------------------------------
Cedel. Prior to the expiration of the Restricted Period, beneficial interests in
- -----
the Regulation S Global Note may only be held by DTC through its member
participants who are Agent Members of Euroclear and Cedel, unless delivery is
made through the Rule 144A Global Note in accordance with the certification
requirements hereof.
(g) Private Placement Legend. Each Note issued hereunder shall, upon
------------------------
issuance, bear the legend set forth herein and such legend shall not be removed
from such Note except as provided in the next sentence. Except in connection
with a Resale Shelf Registration Statement contemplated by and pursuant to the
Registration Rights Agreement, the legend required for a
<PAGE>
29
Rule 144A Note or a Regulation S Note may be removed from a Rule 144A Note or a
Regulation S Note if there is delivered to the Company and the Trustee such
satisfactory evidence, which may include an opinion of independent counsel
licensed to practice law in the State of New York, as may be reasonably required
by the Company and the Trustee, that neither such legend nor the restrictions on
transfer set forth therein are required to ensure that transfers of such Note
will not violate the registration requirements of the Securities Act. Upon
provision of such satisfactory evidence, the Trustee, at the direction of the
Company, shall authenticate and deliver in exchange for such Note another Note
or Notes having an equal aggregate principal amount that does not bear such
legend. If such a legend required for a Rule 144A Note or a Regulation S Note
has been removed from a Rule 144A Note or a Regulation S Note as provided above,
no other Note issued in exchange for all or any part of such Note shall bear
such legend, unless the Company has reasonable cause to believe that such other
Note is a "restricted security" within the meaning of Rule 144 and instructs the
Trustee to cause a legend to appear thereon.
The Notes shall bear the following legend (the "Private Placement Legend")
------------------------
on the face thereof:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
--------------
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S, (2) AGREES THAT
IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF
TIME AS PERMITTED BY RULE 144 (k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE
LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE
-----------------------------------
TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT THE PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S
<PAGE>
30
UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHICH THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT THE ISSUER AND THE TRUSTEE SHALL HAVE
THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D)
OR (E), TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
(h) General. By its acceptance of any Note bearing the Private Placement
-------
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Note (including any transfers between or among Agent Members or
beneficial owners of interest in any Global Note) other than to require delivery
of such certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by the terms of, this
Indenture, and to examine the same to determine substantial compliance as to
form with the express requirements hereof.
Each Holder of a Note agrees to indemnify the Company and the Trustee
against any liability that may result from the transfer, exchange or assignment
of such Holder's Note in violation of any provision of this Indenture and/or
applicable United States Federal or state securities law.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.6 or this Section 2.7. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
(i) Definitive Notes shall be transferable only upon the surrender of a
Definitive Note for registration of transfer. When a Definitive Note is
presented to the Registrar or a co-registrar with a request to register a
transfer, the Registrar shall register the transfer as requested if its
requirements for such transfers are met. When Definitive Notes are presented to
the Registrar or a co-registrar with a request to exchange them for an equal
principal amount of Definitive Notes of other denominations, the Registrar shall
make the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company shall
<PAGE>
31
execute and the Trustee shall authenticate Definitive Notes at the Registrar's
or co-registrar's request.
(j) The Company shall not be required to make, and the Registrar need not
register transfers or exchanges of, Definitive Notes selected for redemption
(except, in the case of Definitive Notes to be redeemed in part, the portion
thereof not to be redeemed) or any Definitive Notes for a period of 15 days
before a selection of Definitive Notes to be redeemed.
(k) Prior to the due presentation for registration of transfer of any Note,
the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar
may deem and treat the Person in whose name a Note is registered as the absolute
owner of such Note for the purpose of receiving payment of Accreted Value or
principal, interest, Additional Amounts, if any, or Liquidated Damages, if any,
on such Note and for all other purposes whatsoever, whether or not such Note is
overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar
or any co-registrar shall be affected by notice to the contrary.
(l) The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section 2.7.
(m) All Notes issued upon any transfer or exchange pursuant to the terms of
this Indenture will evidence the same debt and will be entitled to the same
benefits under this Indenture as the Notes surrendered upon such transfer or
exchange.
(n) Holders of Notes (or holders of interests therein) and prospective
purchasers designated by such Holders (or holders of interests therein) will
have the right to obtain from the Company upon request by such Holders (or
holders of interests therein) or prospective purchasers, during any period in
which the Company is not subject to Section 13 or 15(d) of the Exchange Act, or
is exempt from reporting pursuant to 12g3-2(b) under the Exchange Act, the
information required by paragraph d(4)(i) of Rule 144A in connection with any
transfer or proposed transfer of such Notes.
SECTION 2.8 Replacement Notes. If a mutilated Definitive Note is
-----------------
surrendered to the Registrar, if a mutilated Global Note is surrendered to the
Company or if the Holder of a Note claims that such Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note in such form as the Note being replaced if the
requirements of the Trustee, the Registrar and the Company are met. If required
by the Trustee, the Registrar or the Company, such Holder must provide an
indemnity bond or other indemnity, sufficient in the judgment of the Company,
the Registrar and the Trustee, to protect the Company, the Registrar, the
Trustee and any Agent from any loss which any of them may suffer if a Note is
replaced. The Company, the Trustee and Registrar, may charge such Holder for its
reasonable, out-of-pocket expenses in replacing a Note, including reasonable
fees and expenses of counsel. Every replacement Note is an additional obligation
of the Company.
SECTION 2.9 Outstanding Notes. Notes outstanding at any time are all the
-----------------
Notes that have been authenticated by the Trustee except those canceled by it,
those delivered to it for
<PAGE>
32
cancellation, those reductions in the Global Note effected in accordance with
the provisions hereof and those described in this Section as not outstanding.
Subject to Section 2.10, a Note does not cease to be outstanding because the
Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.8 (other than a mutilated Note
surrendered for replacement), it ceases to be outstanding unless the Trustee
receives proof satisfactory to it that the replaced Note is held by a bona fide
purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note
and replacement thereof pursuant to Section 2.8.
If the Accreted Value or principal amount of any Note is considered paid
under Section 4.1 hereof, it ceases to be outstanding and interest, Additional
Amounts, if any, and Liquidated Damages, if any, on it cease to accrue and
Accreted Value ceases to increase.
If, on a Redemption Date or the Maturity Date, the Paying Agent holds cash
in U.S. dollars or U.S. Government Securities sufficient to pay all of the
Accreted Value or principal and interest due on the Notes payable on that date,
then, on and after that date, such Notes cease to be outstanding and interest,
Additional Amounts, if any, and Liquidated Damages, if any, on such Notes cease
to accrue and Accreted Value ceases to increase.
SECTION 2.10 Treasury Notes. In determining whether the Holders of the
--------------
required principal amount at maturity of Notes have concurred in any direction,
waiver or consent, Notes owned by the Company or its Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that a Trust Officer of the Trustee actually knows are so owned shall be
disregarded.
The Company shall notify the Trustee, in writing, when it or any of its
Affiliates repurchases or otherwise acquires Notes of the aggregate principal
amount at maturity of such Notes so repurchased or otherwise acquired. The
Trustee may require an Officers' Certificate listing Notes owned by the Company,
a Subsidiary of the Company or an Affiliate of the Company.
SECTION 2.11 Temporary Notes. Until permanent Definitive Notes are ready
---------------
for delivery, the Company may prepare and the Trustee shall authenticate
temporary Definitive Notes upon receipt of a Company Order in the form of an
Officers' Certificate. The Officers' Certificate shall specify the amount of
temporary Definitive Notes to be authenticated and the date on which the
temporary Definitive Notes are to be authenticated. Temporary Definitive Notes
shall be substantially in the form of permanent Definitive Notes but may have
variations that the Company considers appropriate for temporary Definitive
Notes. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate upon receipt of a Company Order pursuant to Section 2.2
permanent Definitive Notes in exchange for temporary Definitive Notes.
SECTION 2.12 Cancellation. The Company at any time may deliver Notes to the
------------
Trustee for cancellation. The Registrar and the Paying Agent shall forward to
the Trustee any Notes surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of
<PAGE>
33
the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel
and, at the written direction of the Company, shall dispose of (subject to the
record retention requirements of the Exchange Act) all Notes surrendered for
transfer, exchange, payment or cancellation; provided, however, that the Trustee
may, but shall not be required to, destroy such canceled Notes. Subject to
Section 2.7, the Company may not issue new Notes to replace Notes that it has
paid or delivered to the Trustee for cancellation. If the Company shall acquire
any of the Notes, such acquisition shall not operate as a redemption or
satisfaction of the Indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation pursuant to this Section
2.12.
SECTION 2.13 Defaulted Interest. If the Company defaults in a payment of
------------------
interest on the Notes, it shall pay the defaulted interest, plus (to the extent
lawful) any interest payable on the defaulted interest, to the Holder thereof on
a subsequent special record date, which date shall be the fifteenth day next
preceding the date fixed by the Company for the payment of defaulted interest.
The Company shall notify the Trustee and Paying Agent in writing of the amount
of defaulted interest proposed to be paid on each Note and the date of the
proposed payment (a "Default Interest Payment Date"), and at the same time the
-----------------------------
Company shall deposit with the Trustee or Paying Agent an amount of money equal
to the aggregate amount proposed to be paid in respect of such defaulted
interest or shall make arrangements satisfactory to the Trustee or Paying Agent
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to such
defaulted interest as in this Section 2.13; provided, however, that in no event
shall the Company deposit monies proposed to be paid in respect of defaulted
interest later than 10:00 a.m. New York City time on the proposed Default
Interest Payment Date with respect to defaulted interest to be paid on the Note.
At least 15 days before the subsequent special record date, the Company shall
mail to each Holder, with a copy to the Trustee, a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest, and interest payable on such defaulted interest, if any, to be paid.
SECTION 2.14 CUSIP, ISIN and Common Code Numbers. The Company in issuing
-----------------------------------
the Notes may use a "CUSIP," "ISIN" or "Common Code" number, and if so, the
Trustee shall use the CUSIP, ISIN and Common Code number in notices of
redemption or exchange as a convenience to Holders; provided, however, that any
such notice may state that no representation is made as to the correctness or
accuracy of the CUSIP, ISIN and Common Code number printed in the notice or on
the Notes, and that reliance may be placed only on the other identification
numbers printed on the Notes. The Company shall promptly notify the Trustee of
any change in any CUSIP, ISIN or Common Code number.
SECTION 2.15 Deposit of Moneys. Prior to 10:00 a.m. New York City time on
-----------------
each Interest Payment Date and Maturity Date, the Company shall have deposited
with the Paying Agent in immediately available funds money sufficient to make
cash payments, if any, due on such Interest Payment Date or Maturity Date, as
the case may be, on all Notes then outstanding. Such payments shall be made by
the Company in a timely manner which permits the Paying Agent to remit payment
to the Holders on such Interest Payment Date or Maturity Date, as the case may
be.
<PAGE>
34
SECTION 2.16 Certain Matters Relating to Global Notes. (a) Members of, or
----------------------------------------
participants in, DTC ("Agent Members") shall have no rights under this Indenture
-------------
with respect to any Global Note held on their behalf by DTC or the Trustee as
its custodian, or under the Global Note, and DTC may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
the Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by DTC or impair, as between DTC and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a Holder of any Note.
(b) The Holder of any Global Note may grant proxies and otherwise authorize
any person, including DTC and its Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
ARTICLE III
REDEMPTION
----------
SECTION 3.1 Optional Redemption. The Company may redeem all or any portion
-------------------
of the Notes, upon the terms and at the redemption prices set forth in each of
the Notes. Any redemption pursuant to this Section 3.1 shall be made pursuant to
the provisions of this Article III.
SECTION 3.2 Notices to Trustee. If the Company elects to redeem Notes
------------------
pursuant to Paragraphs 8 or 9 of such Notes, it shall notify the Trustee in
writing of the Redemption Date and the principal amount or Accreted Value, as
the case may be, of Notes to be redeemed at least 15 days prior to the giving of
the notice contemplated by Section 3.4 (or such shorter period as the Trustee in
its sole discretion shall determine). The Company shall give notice of
redemption as required under the relevant paragraph of the Notes pursuant to
which such Notes are being redeemed.
SECTION 3.3 Selection of Notes to Be Redeemed. If less than all of the
---------------------------------
Notes are to be redeemed at any time, selection of such Notes for redemption
will be made by the Trustee in compliance with the requirements of the principal
securities exchange, if any, on which such Notes are listed, or if such Notes
are not so listed or such exchange prescribes no method of selection, on a pro
rata basis, by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate (and in such manner as complies with applicable
legal and exchange requirements); provided, however, that no Note of $1,000 in
aggregate principal amount at maturity or less shall be redeemed in part. In the
event of partial redemption by lot, the particular Notes to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the Redemption Date by the Trustee from the outstanding Notes not
previously called for redemption.
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35
SECTION 3.4 Notice of Redemption. At least 30 days but not more than 60
--------------------
days before a Redemption Date, the Company shall publish in a leading newspaper
having a general circulation in New York (which is expected to be The Wall
Street Journal) and in Frankfurt (which is expected to be the Frankfurter
Allegmeine Zeitung) (and, if and so long as the Notes are listed, admitted or
eligible for trading on a stock exchange or trading market and the rules or
regulations of such stock exchange or trading market shall so require, a
newspaper having a general circulation in the additional jurisdictions as such
rules or regulations may require) or, in the case of Definitive Notes, the
Company shall mail to the Holders by first-class mail, postage prepaid, at their
respective addresses as they appear on the registration books of the Registrar.
At the Company's request made at least 45 days before the Redemption Date (or
such shorter period as the Trustee in its sole discretion shall determine), the
Trustee shall give the notice of redemption in the Company's name and at the
Company's expense; provided, however, that the Company shall deliver to the
Trustee, an Officers' Certificate requesting that the Trustee give such notice
and setting forth the information to be stated in such notice as provided in the
following items. Each notice for redemption shall identify the Notes to be
redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Prices and the amount of interest, if any, Additional
Amounts, if any, and Liquidated Damages, if any, to be paid;
(c) the name and address of the Paying Agent;
(d) that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price plus accrued and unpaid interest, if any,
Additional Amounts, if any, and Liquidated Damages, if any;
(e) that, unless the Company defaults in making the redemption payment,
interest, Additional Amounts, if any, and Liquidated Damages, if any, on Notes
called for redemption cease to accrue on and after the Redemption Date (and
Accreted Value ceases to increase), and the only remaining right of the Holders
of such Notes is to receive payment of the Redemption Price upon surrender to
the Paying Agent of the Notes redeemed;
(f) (i) if any Global Note is being redeemed in part, the portion of the
principal amount or Accreted Value, as the case may be, of such Note to be
redeemed and that, after the Redemption Date, interest, Additional Amounts, if
any, and Liquidated Damages, if any, shall cease to accrue (and Accreted Value
ceases to increase) on the portion called for redemption, and upon surrender of
such Global Note, the Global Note with a notation on Schedule A thereof
adjusting the principal amount at maturity thereof to be equal to the unredeemed
portion, will be returned and (ii) if any Definitive Note is being redeemed in
part, the portion of the principal amount at maturity of such Note to be
redeemed, and that, after the Redemption Date, upon surrender of such Definitive
Note, a new Definitive Note or Notes in aggregate principal amount at maturity
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof, upon cancellation of the original Note;
<PAGE>
36
(g) if fewer than all the Notes are to be redeemed, the identification of
the particular Notes (or portion thereof) to be redeemed, as well as the
aggregate principal amount at maturity of Notes to be redeemed and the aggregate
principal amount of Notes at maturity to be outstanding after such partial
redemption;
(h) the paragraph of the Notes pursuant to which the Notes are to be
redeemed; and
(i) the CUSIP, ISIN or Common Code number, and that no representation is
made as to the correctness or accuracy of the CUSIP, ISIN or Common Code number,
if any, listed in such notice or printed on the Notes.
SECTION 3.5 Effect of Notice of Redemption. Once notice of redemption is
------------------------------
given in accordance with Section 3.4, Notes called for redemption become due and
payable on the Redemption Date and at the Redemption Price plus accrued and
unpaid interest, if any, Additional Amounts, if any, and Liquidated Damages, if
any. Upon surrender to the Trustee or Paying Agent, such Notes called for
redemption shall be paid at the Redemption Price (which shall include accrued
and unpaid interest thereon, if any, Additional Amounts, if any, and Liquidated
Damages, if any, to the Redemption Date), but installments of interest, the
maturity of which is on or prior to the Redemption Date, shall be payable to
Holders of record at the close of business on the relevant Record Dates.
SECTION 3.6 Deposit of Redemption Price. Prior to 10:00 a.m. New York City
---------------------------
time on the Redemption Date, the Company shall deposit with the Paying Agent
cash in U.S. dollars sufficient to pay the Redemption Price plus accrued and
unpaid interest, if any, Additional Amounts, if any, and Liquidated Damages, if
any, of all Notes to be redeemed on that date. The Paying Agent shall promptly
return to the Company any cash in U.S. dollars so deposited which is not
required for that purpose upon the written request of the Company.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price plus accrued and unpaid
interest, if any, Additional Amounts, if any, and Liquidated Damages, if any,
interest, Additional Amounts and Liquidated Damages on the Notes to be redeemed
will cease to accrue on and after the applicable Redemption Date (and Accreted
Value will cease to increase), whether or not such Notes are presented for
payment. With respect to Definitive Notes, if a Definitive Note is redeemed on
or after an interest Record Date but on or prior to the related Interest Payment
Date, then any accrued and unpaid interest, Additional Amounts, if any, and
Liquidated Damages, if any, shall be paid to the Person in whose name such Note
was registered at the close of business on such Record Date. If any Note called
for redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, Additional
Amounts, if any, Liquidated Damages, if any, and interest shall be paid (or
Accreted Value shall increase, as the case may be) on the unpaid principal, from
the redemption date until such principal or Accreted Value is paid, and to the
extent lawful on any interest not paid on such unpaid principal or Accreted
Value, in each case at the rate provided in the Notes and in Section 4.1.
<PAGE>
37
SECTION 3.7 Notes Redeemed in Part. Upon surrender and cancellation of a
----------------------
Definitive Note that is redeemed in part, the Company shall execute and the
Trustee shall authenticate for the Holder (at the Company's expense) a new
Definitive Note equal in principal amount at maturity to the unredeemed portion
of the Definitive Note surrendered and canceled; provided, however, that each
such Definitive Note shall be in a principal amount at maturity of $1,000 or an
integral multiple thereof. Upon surrender of a Global Note that is redeemed in
part, the Paying Agent shall forward such Global Note to the Trustee who shall
make a notation on Schedule A thereof to reduce the principal amount at maturity
of such Global Note to an amount equal to the unredeemed portion of the Global
Note surrendered; provided, however, that each such Global Note shall be in a
principal amount at maturity of $1,000 or an integral multiple thereof.
ARTICLE IV
COVENANTS
---------
SECTION 4.1 Payment of Notes. (a) The Company shall pay the principal,
----------------
premium, if any, interest, Additional Amounts, if any, and Liquidated Damages,
if any, on the Notes, and Accreted Value thereon shall increase, in the manner
provided in such Notes and this Indenture. An installment of Accreted Value or
principal of or interest on the Notes shall be considered paid on the date it is
due if the Trustee or Paying Agent holds at 10:00 a.m. New York City time on
that date money deposited by the Company in immediately available funds and
designated for, and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders pursuant to the terms of this
Indenture.
(b) The Company shall pay, to the extent such payments are lawful, interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and on overdue installments of interest (without regard to any
applicable grace periods), on any Additional Amounts, and on any Liquidated
Damages, from time to time on demand at the rate borne by the Notes plus 1.5%
per annum. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
SECTION 4.2 Maintenance of Office or Agency. The Company shall maintain
-------------------------------
the offices or agencies (which offices may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-Registrar) required under Section 2.3
where Notes may be surrendered for registration of transfer or for exchange and
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of any such office
or agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 11.2. The Company hereby initially
designates the office of Corporation Services Company, located at Two World
Trade Center, Suite 8746, New York, New York, 10048, as its office or agency in
the State of New York as required under Section 2.3 hereof. The Company shall
maintain or appoint such other paying or transfer agents as may be required by
the rules of any stock exchange or
<PAGE>
38
trading market on which the Notes may be listed, admitted or eligible for
trading from time to time.
SECTION 4.3 Limitation on Restricted Payments. (a) The Company will not,
---------------------------------
and will not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend or make any distribution on account of any Equity
Interest in the Company or any Restricted Subsidiary to the holders thereof,
including any dividend or distribution payable in connection with any merger or
consolidation (other than (A) dividends or distributions payable solely in
Equity Interests (other than Redeemable Stock) of the Company, (B) dividends or
distributions made only to the Company or a Restricted Subsidiary and (C) pro
rata dividends or distributions of Capital Stock of a Restricted Subsidiary held
by Persons other than the Company or a Restricted Subsidiary), (ii) purchase,
redeem, retire or otherwise acquire for value any Equity Interests of the
Company, an Unrestricted Subsidiary or a Restricted Subsidiary (other than any
such Equity Interests owned by the Company or any Restricted Subsidiary), (iii)
make any principal payment or redeem, purchase, repurchase, defease, or
otherwise acquire or retire for value, in each case, prior to any scheduled
repayment, or maturity, any Indebtedness of the Company that is subordinated in
right of payment to the Notes, or (iv) make any Investment, other than a
Permitted Investment, in any Person (all such payments or any other actions
described in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments") unless, at the time of, and after giving effect to, the
proposed Restricted Payment:
(A) no Default or Event of Default shall have occurred and be
continuing;
(B) the Company could Incur at least (Euro)1.00 of additional
Indebtedness under Section 4.4(a); and
(C) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good faith
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) after the Issue Date is less than the sum
of (1) 50% of the aggregate amount of the Consolidated Net Income (or, if
the Consolidated Net Income is a loss, 100% of the amount of such loss)
accrued on a cumulative basis during the period (taken as one accounting
period) beginning on the first day of the fiscal quarter beginning
immediately following the Issue Date and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports have been
filed with the Commission or provided to the Trustee pursuant to Section
4.10 plus (2) 100% of the aggregate Net Cash Proceeds received by the
Company after the Issue Date from the issuance and sale of its Equity
Interests (other than Redeemable Stock and excluding any Equity Interests
issued in connection with the Offering) to a Person (other than a
Subsidiary of the Company), except to the extent that such Net Cash
Proceeds are used (I) to purchase, redeem or otherwise retire Equity
Interests or Indebtedness as set forth below in clause (iii) or (iv) of the
immediately succeeding paragraph or (II) to Incur Indebtedness pursuant to
clause (x) of paragraph (b) of Section 4.4, plus (3) the aggregate amount
by which Indebtedness (other than any Indebtedness subordinated in right of
payment to the Notes) of the Company or any Restricted Subsidiary is
reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the Issue Date
into
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39
Equity Interests (other than Redeemable Stock and less the amount of any
cash, or the fair value of property, distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange), plus (4) without
duplication of any amount included in the calculation of Consolidated Net
Income, in the case of repayment of, or return of capital with respect to,
any Investment constituting a Restricted Payment (including the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries) made
after the Issue Date, an amount equal to the lesser of (x) the repayment
of, or the return of capital with respect to, such Investment and (y) the
cost of such Investment, in either case less the cost of the disposition of
such Investment and net of taxes.
(b) The foregoing provisions of Section 4.3(a) shall not prohibit: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the provisions of
this Indenture; (ii) the redemption, repurchase, defeasance or other acquisition
or retirement for value of Indebtedness that is subordinated in right of payment
to the Notes including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of
paragraph Section 4.4(b); (iii) the repurchase, redemption or other acquisition
of Equity Interests in the Company in exchange for, or out of the Net Cash
Proceeds of, a substantially concurrent offering of Equity Interests (other than
Redeemable Stock and excluding any Equity Interests issued in connection with
the Offering) in the Company to any Person (other than a Subsidiary); (iv) the
repurchase, redemption or other acquisition of Indebtedness of the Company which
is subordinated in right of payment to the Notes in exchange for, or out of the
Net Cash Proceeds of, a substantially concurrent offering of Equity Interests
(other than Redeemable Stock and excluding any Equity Interests issued in
connection with the Offering) in the Company to any Person (other than a
Subsidiary); (v) repurchases of Equity Interests of the Company from employees
of the Company or any of its Restricted Subsidiaries deemed to occur upon
exercise of stock options if such Equity Interests represent a portion of the
exercise price of such options, provided that any payments made pursuant to this
clause (v) may not exceed in the aggregate (Euro)5.0 million in any fiscal year
of the Company; (vi) Investments in any Person (the primary business of which is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investment); provided that the
aggregate amount of Investments made pursuant to this clause (vi) does not
exceed the sum of (a) (Euro)25.0 million, plus (b) the amount of Net Cash
Proceeds received by the Company after the Issue Date from the issuance and sale
of its Equity Interests (other than Redeemable Stock and excluding any Equity
Interests issued in connection with the Offering) to a Person (other than a
Subsidiary of the Company), except to the extent that such Net Cash Proceeds are
used (I) to make Restricted Payments pursuant to clause (C)(2) of Section 4.3(a)
or clauses (iii) or (iv) of Section 4.3(b) or (II) to Incur Indebtedness
pursuant to clause (x) of paragraph (b) of Section 4.4, plus (c) the aggregate
amount by which Indebtedness (other than any Indebtedness subordinated in right
of payment to the Notes) of the Company or any Restricted Subsidiary is reduced
on the Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date into Equity Interests
(other than Redeemable Stock and less the amount of any cash, or the fair value
of property, distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange); and (vii) Investments acquired in exchange for Capital
Stock (other than Redeemable Stock) of the Company; provided that, in the case
of clauses (ii) through (vii),
<PAGE>
40
no Default or Event of Default shall have occurred and be continuing or occur as
a consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than the Restricted Payments referred to in clauses (ii) and
(vii) thereof and the Net Cash Proceeds from any issuance of Equity Interests
referred to in clauses (iii) and (iv) thereof) shall be included in calculating
whether the conditions of clause (C) of Section 4.3(a) have been met with
respect to any subsequent Restricted Payments. In the event the proceeds of an
issuance of Equity Interests (other than Redeemable Stock and excluding any
Equity Interests issued in connection with the Offering) of the Company are used
for the redemption, repurchase or other acquisition of the Notes, then the Net
Cash Proceeds of such issuance shall be included in clause (C) of Section 4.3(a)
only to the extent such proceeds are not used for such redemption, repurchase or
other acquisition of the Notes.
(c) Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.3 were computed, which calculations may
be based upon the Company's latest available financial statements. The Trustee
shall have no duty to recompute or recalculate or verify the accuracy of the
information set forth in such Officers' Certificate.
SECTION 4.4 Limitation on Indebtedness. (a) The Company will not, and will
--------------------------
not permit any of its Restricted Subsidiaries to, Incur any Indebtedness;
provided, however, that if no Default or Event of Default shall have occurred
and be continuing at the time, or would occur as a consequence of the Incurrence
of any such Indebtedness, the Company may Incur Indebtedness if immediately
thereafter the ratio of (i) the aggregate principal amount of Indebtedness of
the Company and its Restricted Subsidiaries on a consolidated basis outstanding
as of the Transaction Date to (ii) the pro forma Consolidated Cash Flow for the
preceding two full fiscal quarters multiplied by two, determined on a pro forma
basis as if any such Indebtedness had been Incurred and the proceeds thereof had
been applied at the beginning of such two fiscal quarters, would be greater than
zero and less than or equal to 6.0 to 1.
(b) Notwithstanding the foregoing, (except for Indebtedness under
subsection (vii) below) the Company and (except for Indebtedness under
subsections (v), (vi), (x) and (xii) below) any Restricted Subsidiary may Incur
each and all of the following:
(i) Indebtedness (other than Acquired Indebtedness) in an aggregate
principal amount at any one time outstanding not to exceed (Euro)100.0
million Incurred to finance the cost (provided that such Indebtedness is
Incurred at any time on or before, or within 90 days following, the
incurrence of such cost) (including the cost of design, development,
construction, acquisition, transportation, installation or integration) of
equipment, inventory or network assets used in the Permitted Business or
Equity Interests of (A) a Restricted Subsidiary that owns principally such
assets from a Person other than the Company or a Restricted Subsidiary of
the Company or (B) any Person tha t is principally engaged in the Permitted
Business, that would become a Restricted Subsidiary and owns principally
such assets; provided that (x) any such Indebtedness of a Restricted
Subsidiary
<PAGE>
41
must be Incurred under one or more Credit Facilities, under one or more
Capitalized Leases or from the vendor of the equipment, inventory or
network assets acquired with the proceeds of such Indebtedness, (y) the
amount of such Indebtedness of the Company or any Restricted Subsidiary may
not exceed the Fair Market Value of the assets so acquired and (z) the
amount of any such Indebtedness permitted to be Incurred to acquire Equity
Interests pursuant to clauses (A) or (B) shall be reduced by the amount of
any Acquired Indebtedness Incurred in such acquisition;
(ii) Indebtedness of any Restricted Subsidiary owing to and held by
the Company, Indebtedness of the Company owing to and held by any
Restricted Subsidiary or Indebtedness of any Restricted Subsidiary owing to
and held by any other Restricted Subsidiary; provided that any subsequent
issuance or transfer of any Capital Stock or any other event which results
in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such Indebtedness not permitted by this clause (ii); and
provided, further, that Indebtedness of the Company owing to and held by a
Restricted Subsidiary must be unsecured and subordinated in right of
payment to the Notes;
(iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness of the
Company or a Restricted Subsidiary, other than Indebtedness Incurred under
clauses (ii), (iv), (vii), (viii), (x) and (xii) of this paragraph, and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, and reasonable fees and
expenses); provided that such new Indebtedness shall only be permitted
under this clause (iii) if (A) in case the Notes are refinanced in part or
the Indebtedness to be refinanced or refunded is pari passu with the Notes,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment to the Notes at least to
the extent that the Indebtedness to be refinanced or refunded is
subordinated to the Notes, (C) the Stated Maturity of such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, is no earlier than the Stated Maturity of the Indebtedness
being refinanced or refunded and (D) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, has a Weighted Average
Life to Maturity which is not less than the remaining Weighted Average Life
to Maturity of the Indebtedness to be refinanced or refunded; and provided
further that in no event may Indebtedness of the Company be refinanced or
refunded by means of any Indebtedness of any Restricted Subsidiary pursuant
to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds or letters of credit supporting Trade Payables, in each case provided
in the ordinary course of business, (B) under Currency Agreements and
Interest Rate Agreements; provided that
<PAGE>
42
such agreements (x) are designed solely to protect the Company or the
Restricted Subsidiary, as the case may be, against fluctuations in foreign
currency exchange rates or interest rates and (y) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder, and (C)
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, bankers' acceptances, surety bonds or performance bonds securing
any obligations of the Company or any of its Restricted Subsidiaries
pursuant to such agreements, in any case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of the Company
(other than Guarantees of Indebtedness Incurred for the purpose of
financing such acquisition by the Person acquiring all or any portion of
such business, assets or Restricted Subsidiary), in a principal amount not
to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition;
(v) Indebtedness, to the extent that the net proceeds thereof are
promptly (A) used to repurchase Notes tendered in a Change of Control Offer
or (B) deposited to defease all of the Notes as described in Sections 8.1,
8.2 and 8.3;
(vi) Indebtedness of the Company represented by the Notes;
(vii) Indebtedness represented by a Guarantee of the Notes and
Guarantees of other Indebtedness of the Company by a Restricted Subsidiary
in each case permitted by and made in accordance with Section 4.17;
(viii)ab Indebtedness under one or more Credit Facilities (which shall be
in addition to any such Indebtedness incurred under one or more Credit
Facilities under clause (b)(i) above) in an aggregate principal amount at
any one time outstanding not to exceed the greater of (x) (Euro)50.0
million and (y) 80.0% of Eligible Accounts Receivable at such time;
(ix) Acquired Indebtedness; provided that the aggregate amount of
such Acquired Indebtedness of the Person that is to become a Restricted
Subsidiary, or to be merged or consolidated with or into the Company or any
Restricted Subsidiary in the contemplated transaction, or to be assumed by
the Company or a Restricted Subsidiary in connection with an Asset
Acquisition, outstanding at the time of such transaction does not exceed
the Fair Market Value of the equipment, inventory, network assets and Cash
Equivalents of any Restricted Subsidiary so acquired or that are acquired
in such Asset Acquisition, as the case may be;
(x) Indebtedness of the Company not to exceed, at any one time
outstanding, the sum of (A) 2.00 times the Net Cash Proceeds received from
the issuance and sale, other than to a Subsidiary, of Equity Interests
(other than Redeemable Stock and excluding any Equity Interests issued in
connection with the Offering) of the Company, less (I) the amount of such
proceeds used to make Restricted Payments as provided in clause (C)(2) of
subsection 4.3(a) or clauses (iii) or (iv) of the first paragraph of
subsection 4.3(b) and
<PAGE>
43
(II) if such proceeds are used to consummate a transaction pursuant to
which the Company Incurs Acquired Indebtedness, one-half of the amount of
such Acquired Indebtedness so Incurred and (B) the Fair Market Value of any
Permitted Assets acquired by the Company in exchange for Equity Interests
of the Company issued after the Issue Date; provided, however, that in
determining the Fair Market Value of any such Permitted Assets so acquired,
if the estimated Fair Market Value of such Permitted Assets exceeds (x)
(Euro)2.0 million, then the Fair Market Value of such Permitted Assets will
be determined by a majority of the Board of Directors, which determination
will be evidenced by a resolution thereof, and (y) (Euro)10.0 million, then
the Company will deliver to the Trustee a written appraisal as to the fair
market value of such Permitted Assets prepared by an internationally
recognized investment banking or public accounting firm (or, if no such
investment banking or public accounting firm is qualified to prepare such
an appraisal, by an internationally recognized appraisal firm); and
provided further that such Indebtedness (other than the Indebtedness
Incurred under one or more Credit Facilities, under one or more Capitalized
Leases or from the vendor of assets, property or services acquired with the
proceeds of such Indebtedness) does not mature prior to the Stated Maturity
of the Notes and the Weighted Average Life to Maturity of such Indebtedness
is longer than that of the Notes;
(xi) Indebtedness outstanding as of the Issue Date; and
(xii) Unsecured Indebtedness of the Company (in addition to Indebtedness
permitted under clauses (i) through (xi) above) in an aggregate principal
amount outstanding at any one time not to exceed (Euro)200.0 million.
(c) For purposes of determining any particular amount of Indebtedness
under subsection 4.4, Guarantees, Liens or obligations with respect to letters
of credit supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included; provided, however, that the
foregoing shall not in any way be deemed to limit the provisions of Section
4.17. For purposes of determining compliance with this Section 4.4, (A) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in subsection 4.4(b), the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses and (B)
the principal amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with US GAAP.
(d) For purposes of determining compliance with any Euro-denominated
restriction on the Incurrence of Indebtedness, the Euro-equivalent principal
amount of Indebtedness denominated in a non-Euro currency shall be calculated
based on the relevant currency exchange rate in effect on the date such
Indebtedness was Incurred, in the case of term Indebtedness, or first committed,
in the case of revolving credit Indebtedness; provided that if such Indebtedness
is Incurred to refinance other Indebtedness denominated in a non-Euro currency,
and such refinancing would cause the applicable Euro-denominated restriction to
be exceeded if calculated at the relevant currency exchange rate in effect on
the date of such refinancing, such Euro-denominated restriction shall be deemed
not to have been exceeded so long as the principal
<PAGE>
44
amount of such refinancing Indebtedness does not exceed the principal amount of
such Indebtedness being refinanced. The principal amount of any Indebtedness
incurred to refinance other Indebtedness, if Incurred in a different currency
from the Indebtedness being refinanced, shall be calculated based on the
currency exchange rate applicable to the currencies in which such refinancing
Indebtedness is denominated that is in effect on the date of such refinancing.
SECTION 4.5 Corporate Existence. Except as otherwise permitted by Article
-------------------
V, the Company shall do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and the corporate,
partnership, limited liability or other existence of each of its Subsidiaries in
accordance with the respective organizational documents (as the same may be
amended from time to time) of each Subsidiary and the rights (charter and
statutory) of the Company and each of its Subsidiaries; provided, however, that
the Company shall not be required to preserve any such right, or the corporate,
partnership, limited liability or other existence of any Subsidiary, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and each of its
Subsidiaries, taken as a whole, and that the loss thereof is not, and will not
be, adverse in any material respect to the Holders.
SECTION 4.6 Payment of Taxes and Other Claims. The Company shall pay or
---------------------------------
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all material taxes, assessments and governmental charges levied
or imposed upon it or any of its Subsidiaries or upon the income, profits or
property of it or any of its Subsidiaries and (ii) all lawful claims for labor,
materials and supplies which, in each case, if unpaid, might by law become a
material liability or Lien upon the property of it or any of its Subsidiaries;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate provision has been made.
SECTION 4.7 Maintenance of Properties and Insurance. (a) The Company shall
---------------------------------------
cause all material properties owned by or leased by it or any of its
Subsidiaries useful and necessary to the conduct of its business or the business
of any of its Subsidiaries to be improved or maintained and kept in normal
condition, repair and working order and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
its judgment may be necessary, so that the business carried on in connection
therewith may be properly conducted at all times; provided, however, that
nothing in this Section 4.7 shall prevent the Company or any of its Subsidiaries
from discontinuing the use, operation or maintenance of any of such properties,
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors or of the board of directors of any
Subsidiary of the Company concerned, or of an officer (or other agent employed
by the Company or of any of its Subsidiaries) of the Company or any of its
Subsidiaries having managerial responsibility for any such property, desirable
in the conduct of the business of the Company or any Subsidiary of the Company,
and if such discontinuance or disposal is not adverse in any material respect to
the Holders.
<PAGE>
45
(b) To the extent available at commercially reasonable rates, the Company
shall maintain, and shall cause its Subsidiaries to maintain, insurance with
responsible carriers against such risks and in such amounts, and with such
deductibles, retentions, self-insured amounts and co-insurance provisions, as
are customarily carried by similar businesses of similar size.
SECTION 4.8 Compliance Certificate; Notice of Default. (a) The Company
-----------------------------------------
shall deliver to the Trustee, within 90 days after the close of each fiscal
year, an Officers' Certificate stating that a review of the activities of the
Company and its Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining whether
it has kept, observed, performed and fulfilled, and has caused each of its
Subsidiaries to keep, observe, perform and fulfill its obligations under this
Indenture and further stating, as to each such Officer signing such certificate,
that, to the best of his or her knowledge, the Company during such preceding
fiscal year has kept, observed, performed and fulfilled, and has caused each of
its Subsidiaries to keep, observe, perform and fulfill each and every such
covenant contained in this Indenture and no Default occurred during such year
and at the date of such certificate there is no Default which has occurred and
is continuing or, if such signers do know of such Default, the certificate shall
describe its status, with particularity and that, to the best of his or her
knowledge, no event has occurred and remains by reason of which payments on the
account of the Accreted Value or principal of or interest, if any, Additional
Amounts, if any, or Liquidated Damages, if any, on the Notes is prohibited or if
such event has occurred, a description of the event and what action each is
taking or proposes to take with respect thereto. The Officers' Certificate shall
also notify the Trustee should the Company elect to change the manner in which
it fixes its fiscal year end. The Company shall notify the Trustee of any
default or defaults in the performance of any covenants or agreements under this
Indenture within five Business Days of becoming aware of any such default.
(b) The annual financial statements delivered pursuant to Section 4.10
shall include, so long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, a written report of the
Company's independent accountants (who shall be a firm of established
international reputation) that in conducting their audit of such financial
statements nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Articles IV, V or VI of this
Indenture or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
(c) The Company shall deliver to the Trustee, within five Business Days,
upon any officer becoming aware of any Default or any default or event of
default under any document, instrument or agreement representing Indebtedness of
the Company, an Officers' Certificate specifying the Default or such default or
event of default and describing its status with particularity.
SECTION 4.9 Compliance with Laws. The Company shall comply, and shall
--------------------
cause each of its Subsidiaries to comply, with all applicable statutes, rules,
regulations, orders of the relevant jurisdiction in which they are incorporated
and/or in which they carry on business, all political subdivisions thereof, and
of any relevant governmental regulatory authority, in respect of the
<PAGE>
46
conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as would not in the aggregate have a
material adverse effect on the financial condition or results of operations of
the Company and its Subsidiaries taken as a whole.
SECTION 4.10 Reports. (a) The Company will file on a timely basis with the
-------
Commission, to the extent such filings are accepted by the Commission and
whether or not the Company has a class of securities registered under the
Exchange Act, (i) all annual and quarterly financial statements and other
financial information that would be required to be contained in a filing with
the Commission on Forms 10-K and 10-Q (which financial statements shall be
prepared in accordance with US GAAP), including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual financial information, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K, in each case, if the Company had a
class of securities registered under the Exchange Act, whether or not the
Company has such a class of securities registered under the Exchange Act. Such
quarterly financial information shall be filed with the Commission within 45
days following the end of each fiscal quarter of the Company, and such annual
financial information shall be furnished within 90 days following the end of
each fiscal year of the Company. Such annual financial information shall include
the geographic segment financial information required to be disclosed by the
Company under Item 101(d) of Regulation S-K under the Securities Act. The
Company shall also (a) file with the Trustee, and provide to each holder,
without cost to such holder, copies of such reports and documents within 15 days
after the date on which the Company files such reports and documents with the
Commission or the date on which the Company would be required to file such
reports and documents if the Company were so required, and (b) if filing such
reports and documents with the Commission is not accepted by the Commission or
is prohibited under the Exchange Act, supply, at the Company's cost, copies of
such reports and documents to any prospective holder promptly upon request. In
addition, if and so long as the Notes are listed, admitted or eligible for
trading on a stock exchange or trading market and the rules or regulations of
such stock exchange or trading market shall require, copies of all reports and
information described above will be available in such places and during such
times as such rules or regulations may require.
(b) Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(c) Such reports shall be delivered to the Registrar and the Registrar will
mail them at the Company's expense to the Holders at their addresses appearing
in the register of Notes maintained by the Registrar if so requested by the
Holders in writing.
(d) Upon qualification of this Indenture with the TIA, the Company shall
also comply with the provisions of TIA Section 314(a).
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47
SECTION 4.11 Waiver of Stay; Extension or Usury Laws. The Company covenants
---------------------------------------
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay or extension law or any usury law or other law that would prohibit
or forgive the Company from paying all or any portion of the principal or
Accreted Value of and/or interest on the Notes as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture, and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.12 Limitation on Transactions with Shareholders and
------------------------------------------------
Affiliates. (a) The Company will not, and will not permit any Restricted
- ----------
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction or series of transactions (including, without limitation, the
purchase, sale, lease or exchange of property or assets, or the rendering of any
service) with any direct or indirect holder (or any Affiliate of such holder) of
5% or more of any class of Capital Stock of the Company or with any Affiliate of
the Company or any Restricted Subsidiary, unless (i) such transaction or series
of transactions is on terms that are no less favorable to the Company or such
Restricted Subsidiary than could reasonably be obtained in a comparable arm's-
length transaction with a Person that is not such a holder or Affiliate, (ii) if
such transaction or series of transactions involves aggregate consideration in
excess of (Euro)2.5 million, the Company shall have delivered to the Trustee a
resolution set forth in an Officers' Certificate adopted by a majority of the
Board of Directors, including a majority of the independent, disinterested
directors, approving such transaction or series of transactions, and certifying
that such transaction or series of transactions comply with clause (i) above and
(iii) if such transaction or series of transactions involves aggregate
consideration in excess of (Euro)7.5 million, the Company shall have delivered
to the Trustee a written opinion as to the fairness to the Company or such
Restricted Subsidiary of such transaction or series of transactions from a
financial point of view from an internationally recognized investment banking
firm (or, if an investment banking firm is generally not qualified to give such
an opinion, by an internationally recognized appraisal firm or accounting firm).
(b) The foregoing limitation does not limit and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) the payment of dividends, distributions or other amounts by the Company or
any Restricted Subsidiary permitted by Section 4.3; (iv) issuances of Equity
Interests (other than Redeemable Stock) on terms consistent with the
requirements of clause (i) of the preceding paragraph; and (v) any payments or
other transactions pursuant to tax-sharing agreements between the Company and
any other Person with which the Company files a consolidated tax return or with
which the Company is part of a consolidated group for tax purposes.
SECTION 4.13 Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries. (a) The Company will not, and will not permit
- ---------------------------------
any Restricted Subsidiary to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any Restricted
<PAGE>
48
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Equity Interests of such Restricted Subsidiary owned by
the Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed
to the Company or any other Restricted Subsidiary, (iii) make loans or advances
to the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
(b) The foregoing provisions shall not prohibit any encumbrances or
restrictions: (i) existing under or by reason of any agreement in effect on the
Issue Date, and any amendments, supplements, extensions, refinancings, renewals
or replacements of such agreements; provided that the encumbrances and
restrictions in any such amendments, supplements, extensions, refinancings,
renewals or replacements are no more restrictive than those encumbrances or
restrictions that are then in effect and that are being amended, supplemented,
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law; (iii) existing with respect to any Restricted Subsidiary
acquired by the Company or any Restricted Subsidiary after the Issue Date, or
the property or assets of such Restricted Subsidiary, and existing at the time
of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired; (iv) in the case of clause (iv) of subsection 4.13(a), (A)
that restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is, or is subject to, a lease, purchase mortgage
obligation, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, materially
detract from the value of property or assets of the Company or any Restricted
Subsidiary to the Company or any Restricted Subsidiary; (v) with respect to a
Restricted Subsidiary and imposed pursuant to an agreement that has been entered
into for the sale or disposition of all or substantially all of the Capital
Stock in, or property and assets of, such Restricted Subsidiary; provided that
such restriction shall terminate if such transaction is abandoned or if such
transaction is not consummated within six months of the date such agreement was
entered into; or (vi) contained in the terms of any Indebtedness or any
agreement pursuant to which such Indebtedness was issued if (A) the encumbrance
or restriction applies only in the event of a payment default or a default with
respect to a financial covenant contained in such Indebtedness or agreement, (B)
the encumbrance or restriction is not materially more disadvantageous to the
holders of the Notes than is customary in comparable financings (as determined
by the Board of Directors) and (C) the Board of Directors determines that any
such encumbrance or restriction will not materially affect the Company's ability
to make payments of Accreted Value or principal or interest on the Notes.
(c) Nothing contained in this Section 4.13 shall prevent the Company or any
Restricted Subsidiary from creating, incurring, assuming or suffering to exist
any Liens otherwise permitted in Section 4.14 that limit the right of the debtor
to dispose of the assets securing such Indebtedness.
SECTION 4.14 Limitation on Liens. The Company will not, and will not permit
-------------------
any Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien
<PAGE>
49
(other than Permitted Liens) securing Senior Subordinated Indebtedness or
Subordinated Obligations on any asset or property of the Company or any
Restricted Subsidiary without making effective provisions for all of the Notes
and all other amounts due under this Indenture to be directly secured equally
and ratably with (or, if the obligation or liability to be secured by such Lien
is subordinated in right of payment to the Notes, prior to) the obligation or
liability secured by such Lien; provided that any Lien which is granted to
secure the Notes under this covenant shall be discharged at the same time as the
discharge of the Lien that gave rise to the obligation to so secure the Notes.
SECTION 4.15 Change of Control. (a) Upon the occurrence of a Change of
-----------------
Control, the Company will make an offer to purchase all or any part (equal to
$1,000 in principal amount at maturity and integral multiples thereof) of the
Notes pursuant to the offer described below (the "Change of Control Offer") at a
price in cash (the "Change of Control Payment") equal to (i) if such purchase is
prior to August 15, 2004, 101% of the Accreted Value thereof or (ii) if such
repurchase is on or after August 15, 2004, 101% of the aggregate principal
amount thereof plus, in either case, accrued and unpaid interest thereon to the
date of repurchase, plus Additional Amounts, if any, and Liquidated Damages, if
any, to the date of repurchase (and in the case of Definitive Notes, subject to
the right of Holders of record on the relevant record date to receive interest
and Liquidated Damages, if any, due on the relevant interest payment date and
Additional Amounts, if any, in respect thereof). Within 30 days following any
Change of Control, the Company will publish notice of such Change of Control
Offer in a leading newspaper having a general circulation in New York (which is
expected to be The Wall Street Journal) and in Frankfurt (which is expected to
be the Frankfurter Allgemeine Zeitung) (and if and so long as the Notes are
listed, admitted or eligible for trading on a stock exchange or trading market
and the rules or regulations of such stock exchange or trading market shall so
require, a newspaper having a general circulation in the additional
jurisdictions as such rules or regulations may require) or, in the case of
Definitive Notes, mail a notice to each Holder (and if and so long as the Notes
are listed, admitted or eligible for trading on a stock exchange or trading
market and the rules or regulations of such stock exchange or trading market
shall so require, publish notice in a newspaper having a general circulation in
the additional jurisdictions as such rules or regulations may require), with a
copy to the Trustee, with the following information: (i) a Change of Control
Offer is being made pursuant to Section 4.15 and all Notes properly tendered
pursuant to such Change of Control Offer will be accepted for payment; (ii) the
purchase price and the purchase date, which will be no earlier than 30 days nor
later than 60 days from the date such notice is published, or where relevant,
mailed, except as may be otherwise required by applicable law (the "Change of
Control Payment Date"); (iii) any Note not properly tendered will remain
outstanding and continue to accrue interest (or increase in Accreted Value, as
the case may be) and Liquidated Damages, if any; (iv) unless the Company
defaults in the payment of the Change of Control Payment, all Notes accepted for
payment pursuant to the Change of Control Offer will cease to accrue interest
(or increase in Accreted Value, as the case may be) and Liquidated Damages, if
any, on the Change of Control Payment Date; (v) Holders electing to have any
Notes purchased pursuant to a Change of Control Offer will be required to
surrender the Notes, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes completed, to the Paying Agent and at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (vi) Holders will be entitled to
withdraw their tendered Notes and their election to require the Company to
purchase such Notes;
<PAGE>
50
provided that the Paying Agent receives, not later than the close of business on
the last Business Day of the offer period, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount at maturity of Notes
tendered for purchase, and a statement that such Holder is withdrawing his
tendered Notes and his election to have such Notes purchased; and (vii) Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the principal amount at maturity
of the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount at maturity or an integral multiple thereof.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder and will
comply with the applicable laws of any non-U.S. jurisdiction in which a Change
of Control Offer is made, in each case, to the extent such laws or regulations
are applicable in connection with the repurchase of the Notes pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this Indenture, the Company
will comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations contained in this Indenture by virtue
thereof. The provisions relating to the Company's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the Holders of a majority in principal
amount at maturity of the Notes.
(b) On the Change of Control Payment Date, the Company will, to the extent
permitted by law, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the aggregate Change of Control Payment in respect of
all Notes or portions thereof so tendered and (iii) deliver, or cause to be
delivered, to the Trustee for cancellation the Notes so accepted together with
an Officers' Certificate stating that such Notes or portions thereof have been
tendered to and purchased by the Company. The Paying Agent will promptly either
(x) pay to the Holder against presentation and surrender (or, in the case of
partial payment, endorsement) of the Global Notes or (y) in the case of
Definitive Notes, mail to each Holder of Notes the Change of Control Payment for
such Notes, and the Trustee will promptly authenticate and deliver to the Holder
of the Global Notes a new Global Note or Notes or, in the case of Definitive
Notes, mail to each Holder a new Definitive Note, as applicable, equal in
principal amount at maturity to any unpurchased portion of the Notes
surrendered, if any; provided, however, that each new Definitive Note and Global
Note will be in a principal amount at maturity of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
SECTION 4.16 Limitation on Asset Sales. (a) The Company will not, and will
-------------------------
not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the
Company or the Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the Fair Market Value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
for such Asset Sale consists of cash or Cash Equivalents or Replacement Assets
or the assumption of Indebtedness which ranks equal in right of payment with the
Notes.
<PAGE>
51
(b) The Company shall, or shall cause the relevant Restricted Subsidiary
to, apply the Net Cash Proceeds from an Asset Sale within 360 days of the
receipt thereof to (A) permanently prepay, repay or purchase Senior Indebtedness
of the Company or Senior Subordinated Indebtedness of the Company or
Indebtedness of any Restricted Subsidiary providing a Guarantee pursuant to
Section 4.17 or Indebtedness of any other Restricted Subsidiary, in each case
owing to a Person other than the Company or any of its Restricted Subsidiaries,
and elect to permanently reduce the commitments thereunder by the amount of such
Indebtedness prepaid, repaid or purchased, (B) invest in Replacement Assets or
(C) in any combination of prepayment, repayment, purchase and reinvestment
permitted by the foregoing clauses (A) and (B).
Any Net Cash Proceeds from such Asset Sale that are not invested as
provided and within the time period set forth in the first sentence of this
subsection will be deemed to constitute "Excess Proceeds." If at any time the
aggregate amount of Excess Proceeds exceeds (Euro)5.0 million, the Company
shall, within 15 Business Days thereafter, make an offer (an "Asset Sale Offer")
to all Holders and to the extent required by the terms thereof, to all holders
of other Senior Subordinated Indebtedness outstanding with similar provisions
requiring the Company to make an offer to purchase such Senior Subordinated
Indebtedness with the proceeds from any Asset Sale ("Pari Passu Notes") to
purchase on a pro rata basis the maximum principal amount (or Accreted Value, as
the case may be) of Notes and the maximum principal amount (or accreted value,
as the case may be) of any such Pari Passu Notes to which the Asset Sale Offer
applies, that is an integral multiple of $1,000 (or (Euro)1,000, as the case may
be) that may be purchased out of the Excess Proceeds at an offer price in cash
in an amount equal to 100% of the outstanding principal amount or accreted value
or Accreted Value, as the case may be, thereof, plus accrued and unpaid interest
thereon plus Additional Amounts and Liquidated Damages, if any, to the date
fixed for the closing of such offer (and, in the case of Definitive Notes,
subject to the right of a Holder of record on the relevant record date to
receive interest and Liquidated Damages, if any, due on the relevant interest
payment date and Additional Amounts, if any, in respect thereof), in accordance
with the procedures set forth in this Indenture or agreements governing the Pari
Passu Notes, as applicable. The Company will commence an Asset Sale Offer by
publishing and mailing the notice required pursuant to the terms of this
Indenture, with a copy to the Trustee. To the extent that the aggregate amount
of Notes and Pari Passu Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, subject to applicable law, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
Accreted Value or principal amount of Notes and accreted value or principal
amount of Pari Passu Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the selection of such Notes and Pari Passu Notes for purchase
will be made by the Trustee in the same manner as the Notes are redeemed, as
provided in Section 3.1. Upon completion of any such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
------------
Business Days after the termination of the Offer Period (the "Purchase Date"),
-------------
the Company shall purchase the maximum principal amount or Accreted Value, as
the case may be, of Notes that may be purchased with such Excess Proceeds (or
such pro rata portion) (which maximum principal amount or Accreted Value, as the
case may
<PAGE>
52
be, of Notes shall be the "Offer Amount") or, if less than the Offer Amount has
------------
been tendered, all Notes tendered in response to the Asset Sale Offer.
If the Purchase Date is on or after an interest Record Date and on or
before the related Interest Payment Date, any accrued and unpaid interest will
be paid in the case of a Global Note, to the Holder thereof or, in the case of a
Definitive Note, to the Person in whose name such Definitive Note is registered
at the close of business on such Record Date, and no additional interest will be
payable to Holders with respect to Notes tendered pursuant to the Asset Sale
Offer.
At least 30 days but not more than 60 days before a Purchase Date, the
Company shall publish in a leading newspaper having a general circulation in New
York (which is expected to be The Wall Street Journal) and in Frankfurt (which
is expected to be the Frankfurter Allgemeine Zeitung) (and, if and so long as
the Notes are listed, admitted or eligible for trading on a stock exchange or
trading market and the rules of such stock exchange or trading market shall so
require, a newspaper having a general circulation in the locations in which the
stock exchange or trading market requires) or, in the case of Definitive Notes,
such notice shall be provided to Holders by first-class mail, postage prepaid,
at their respective addresses as they appear on the registration books of the
Registrar with a copy of such notice to the Trustee (and, if and so long as the
Notes are listed, admitted or eligible for trading on a stock exchange or
trading market and the rules of such stock exchange or trading market shall so
require, by publication in a newspaper having a general circulation in which
stock exchange or trading market requires). The notice shall contain all
instructions and materials (or instructions on how to obtain instructions and
materials) necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The
notice, which shall govern the terms of the Asset Sale Offer, shall state:
(A) that the Asset Sale Offer is being made pursuant to this Section
4.16 and the length of time the Asset Sale Offer shall remain open;
(B) the Offer Amount (including the amount of accrued and unpaid
interest, if any), the purchase price and the Purchase Date;
(C) that any Note or portion thereof not tendered or accepted for
payment shall continue to accrue interest (or increase in Accreted Value,
as the case may be), Additional Amounts, if any, and Liquidated Damages, if
any, in accordance with the terms thereof;
(D) that, unless the Company defaults in making payment therefor, any
Note or portion thereof accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest (or Accreted Value shall cease to
increase, as the case may be), Additional Amounts, if any, and Liquidated
Damages, if any, after the Purchase Date;
(E) (1) if any Global Note is being purchased in part, the portion of
the principal amount at maturity of such Note to be purchased and that,
after the Purchase Date, interest, Additional Amounts, if any, and
Liquidated Damages, if any, shall cease to accrue on the portion to be
purchased (and Accreted Value shall cease to increase
<PAGE>
53
thereon), and upon surrender of such Global Note, the Global Note with a
notation on Schedule A thereof adjusting the principal amount at maturity
thereof to be equal to the unpurchased portion, will be returned and (2) if
a Definitive Note may be purchased in part, that, after the Purchase Date,
upon surrender of such Definitive Note, a new Definitive Note or Notes in
aggregate principal amount at maturity equal at maturity to the unpurchased
portion thereof will be issued in the name of the Holder thereof, upon
cancellation of the original Note;
(F) that Holders electing to have a Note or portion thereof purchased
pursuant to any Asset Sale Offer shall be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the notice at least
three Business Days before the Purchase Date and must complete any form
letter of transmittal proposed by the Company and acceptable to the Trustee
and the Paying Agent;
(G) that, subject to applicable law, Holders shall be entitled to
withdraw their election if the Company, depositary or Paying Agent, as the
case may be, receives, not later than the second Business Day before the
Purchase Date, a facsimile transmission or letter setting forth the name of
the Holder, the principal amount at maturity of the Note or portion thereof
the Holder delivered for purchase, the Note certificate number and a
statement that such Holder is withdrawing his election to have the Note or
portion thereof purchased;
(H) that, if the aggregate principal amount or Accreted Value, as the
case may be, of Notes tendered by Holders, together with the aggregate
principal amount or accreted value, as the case may be, of any Pari Passu
Notes, tendered by Holders exceeds the Offer Amount, the selection of such
Notes for purchase will be made by the Trustee in compliance with the
requirements of the principal securities exchange, if any, on which such
Notes are listed, or if such Notes are not so listed or such exchange
prescribes no method of selection, subject to applicable law, on a pro rata
basis by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate (and in such manner as complies with
applicable legal and exchange requirements); provided, however, that no
Notes of $1,000 at maturity or less shall be purchased in part; provided
further, that, subject to applicable law, in the event of partial purchase
by lot, the particular Notes to be purchased shall be selected, unless
otherwise provided herein, by the Registrar or Trustee from the outstanding
Notes not previously called for purchase; and
(I) the instructions that Holders must follow to tender their Notes.
On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered together with any Pari Passu
Notes, all Notes or portions thereof tendered, and deliver to the Trustee an
Officers' Certificate stating that such Notes or portions thereof were accepted
<PAGE>
54
for payment by the Company in accordance with the terms of this Section 4.16. On
the Purchase Date, the Paying Agent shall promptly cause the principal amount at
maturity of any Global Note so tendered to be adjusted on Schedule A thereof to
be equal to any unpurchased portion of such Global Note which unpurchased
portion must be equal to $1,000 in principal amount at maturity or an integral
multiple thereof, and shall promptly authenticate and mail or deliver to each
tendering Holder of a Definitive Note, a new Definitive Note or Notes equal in
principal amount at maturity to any unpurchased portion of the Definitive Note
surrendered which unpurchased portion must be equal to $1,000 in principal
amount at maturity or an integral multiple thereof. DTC, the Paying Agent or the
Company, as the case may be, shall promptly (but in any case not later than five
Business Days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the Offer Amount of the Notes tendered by such Holder and
accepted by the Company for purchase. Any Notes not so accepted shall be
promptly mailed or delivered by or on behalf of the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale Offer
not later than the second Business Day following the Purchase Date.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder and will
comply with the applicable laws of any non-U.S. jurisdiction in which an Asset
Sale Offer is made, in each case, to the extent such laws or regulations are
applicable in connection with the repurchase of the Notes pursuant to an Asset
Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions hereunder, the Company will comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in this Indenture by virtue thereof.
SECTION 4.17 Limitation on Issuance of Guarantees of Indebtedness by
-------------------------------------------------------
Restricted Subsidiaries. (a) The Company shall not permit any Restricted
- -----------------------
Subsidiary, directly or indirectly, to guarantee, assume or in any other manner
become liable with respect to any Indebtedness of the Company unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to this Indenture providing for a Guarantee of all of the Company's
obligations under the Notes and this Indenture on terms substantially similar to
the guarantee of such Indebtedness, except that if such Indebtedness is by its
express terms subordinated in right of payment to the Notes, any such
assumption, Guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated in right of payment to such
Restricted Subsidiary's assumption, Guarantee or other liability with respect to
the Notes substantially to the same extent as such Indebtedness is subordinated
to the Notes and (ii) such Restricted Subsidiary waives, and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Guarantee; provided that any Restricted Subsidiary may
guarantee Senior Indebtedness of the Company, including Indebtedness under a
Credit Facility if such Indebtedness is Incurred in accordance with Section 4.4;
and provided further that this paragraph shall not be applicable to any
Guarantee of any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary.
<PAGE>
55
(b) Notwithstanding the foregoing subsection (a), any Guarantee of all of
the Company's obligations under the Notes and this Indenture by a Restricted
Subsidiary may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Equity Interests in, or all or substantially all of the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by this Indenture), or (ii) the release or discharge of the guarantee
which resulted in the creation of such Guarantee, except a discharge or release
by or as a result of payment under such guarantee.
SECTION 4.18 Business of the Company; Restriction on Transfers of Existing
-------------------------------------------------------------
Business. The Company will not, and will not permit any Restricted Subsidiary
- --------
to, be principally engaged in any business or activity other than a Permitted
Business. In addition, the Company and any Restricted Subsidiary will not be
permitted, directly or indirectly, to transfer to any Unrestricted Subsidiary
(i) any of the licenses, permits or authorizations used in the Permitted
Business of the Company or any Restricted Subsidiary or (ii) any material
portion of the "property and equipment" (as such term is used in the Company's
consolidated financial statements) of the Company or any Restricted Subsidiary
used in the licensed service areas of the Company or any Restricted Subsidiary.
SECTION 4.19 Limitation on the Issuance and Sale of Capital Stock of
-------------------------------------------------------
Restricted Subsidiaries. The Company will not, and will not permit any
- -----------------------
Restricted Subsidiary, directly or indirectly, to issue, transfer, convey, sell,
lease or otherwise dispose of any shares of Capital Stock (including options,
warrants or other rights to purchase shares of such Capital Stock) of such
Restricted Subsidiary or any other Restricted Subsidiary to any Person (other
than (i) to the Company or a Wholly Owned Restricted Subsidiary and (ii)
issuances of director's qualifying shares of Capital Stock of foreign Restricted
Subsidiaries, in each case, to the extent required by applicable law), unless
(A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale, lease
or other disposition are applied in accordance with the provisions of Section
4.16, (B) immediately after giving effect to such issuance, transfer,
conveyance, sale, lease or other disposition, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and (C) any Investment in such
Person remaining after giving effect to such issuance, transfer, conveyance,
sale, lease or other disposition would have been permitted to be made under
Section 4.3 if made on the date of such issuance, transfer, conveyance, sale,
lease or other disposition (valued as provided in the definition of "Investment"
in Section 1.1).
SECTION 4.20 Additional Amounts. At least 10 days prior to the first date
------------------
on which payment of Accreted Value, principal, premium, if any, or interest on
the Notes is to be made, and at least 10 days prior to any subsequent such date
if there has been any change with respect to the matters set forth in the
Officers' Certificate described in this Section 4.20, the Company will furnish
the Trustee and the Paying Agent, if other than the Trustee, with an Officers'
Certificate instructing the Trustee and the Paying Agent whether such payment of
Accreted Value, principal, premium, if any, or interest on the Notes (whether or
not in the form of Definitive Notes) shall be made to the Holders without
withholding for or on account of any present or future tax, duty, assessment or
other governmental charges of whatever nature (collectively "Taxes") imposed or
levied by or on behalf of The Federal Republic of Germany or any jurisdiction in
which the Company or any Successor Company is organized or is otherwise
<PAGE>
56
resident for tax purposes or any political subdivision thereof or any authority
having power to tax therein or any jurisdiction from or through which payment is
made (each a "Relevant Taxing Jurisdiction"), unless the withholding or
----------------------------
deduction of such Taxes is then required by law. If any deduction or withholding
for, or on account of, any Taxes of any Relevant Taxing Jurisdiction, shall at
any time be required on any payments made by the Company with respect to the
Notes, including payments of Accreted Value, principal, redemption price,
interest or premium, then such Officers' Certificate shall specify the amount,
if any, required to be withheld on such payments to such Holders and the Company
will pay to the Trustee or the Paying Agent the additional amounts pursuant to
paragraph 3 of the Notes (the "Additional Amounts") and, if paid to a Paying
------------------
Agent other than the Trustee, shall provide the Trustee with documentation
satisfactory to the Trustee evidencing the payment of such Additional Amounts.
Copies of such documentation shall be made available to the Holders upon
request. The Company shall indemnify the Trustee and the Paying Agent for, and
hold them harmless against, any loss, liability or expense incurred without
negligence or bad faith on their part arising out of or in connection with
actions taken or omitted by any of them in reliance on any Officers' Certificate
furnished to them pursuant to this Section 4.20.
SECTION 4.21 Payment of Non-Income Taxes and Similar Charges. The Company
-----------------------------------------------
will pay any present or future stamp, court or documentary taxes, or any other
excise or property taxes, charges or similar levies which arise in any
jurisdiction from the execution, delivery or registration of the Notes or any
other document or instrument referred to therein, or the receipt of any payments
with respect to the Notes, excluding any such taxes, charges or similar levies
imposed by any jurisdiction outside of The Federal Republic of Germany, the
United States of America, or any jurisdiction in which a Paying Agent is
located, other than those resulting from, or required to be paid in connection
with, the enforcement of the Notes or any other such document or instrument
following the occurrence of any Event of Default with respect to the Notes.
SECTION 4.22 Limitation on Layering. Notwithstanding the provisions of
----------------------
Section 4.4, the Company shall not Incur any Indebtedness if such Indebtedness
is subordinate or junior in right of payment in any respect to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
contractually subordinated in right of payment to Senior Subordinated
Indebtedness.
SECTION 4.23 Limitation on Investment Company Activities. The Company
-------------------------------------------
will not, and will not permit any of its Restricted Subsidiaries or controlled
Affiliates to, conduct its business in a fashion that would cause the Company to
be required to register as an "investment company" (as that term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act")),
----------------------
or otherwise to become subject to regulation under the Investment Company Act.
For purposes of establishing the Company's compliance with this provision, any
exemption which is or would become available under Section 3(c)(1) or Section
3(c)(7) of the Investment Company Act will be disregarded.
<PAGE>
57
ARTICLE V
SUCCESSOR CORPORATION
---------------------
SECTION 5.1 Consolidation, Merger, and Sale of Assets. The Company will
-----------------------------------------
not consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or in a series of
related transactions) to, any Person or permit any Person to merge with or into
the Company and the Company will not permit any of its Restricted Subsidiaries
to enter into any such transaction or series of transactions if such transaction
or series of transactions, in the aggregate, would result in the sale,
assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company or the Company and
its Restricted Subsidiaries, taken as a whole, to any other Person or Persons,
unless: (i) the Company will be the continuing Person, or the Person (if other
than the Company) (the "Successor Company") formed by such consolidation or into
-----------------
which the Company is merged or that acquired or leased such property and assets
of the Company will be a corporation organized and validly existing under the
laws of the United States of America, any state thereof or the District of
Columbia and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of the Company with respect to
the Notes and under this Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company, or any Person becoming the successor obligor of the
Notes, shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis
the Company, or any Person becoming the successor obligor of the Notes, as the
case may be, could Incur at least (Euro)1.00 of Indebtedness under subsection
4.4(a); (v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with clauses
(iii) and (iv) above) and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this Indenture; and (vi) the Company shall have delivered to the Trustee an
opinion of tax counsel reasonably acceptable to the Trustee stating that (A)
Holders will not recognize income, gain or loss for U.S. federal or German
income tax purposes as a result of such transaction, (B) any payment of Accreted
Value, principal, redemption price or purchase price of, premium (if any) and
interest on the Notes by the Company to a Holder after the consolidation,
merger, conveyance, transfer or lease of assets will be exempt from any Taxes
and (C) no other taxes on income (including taxable capital gains) will be
payable under the tax laws of the Relevant Taxing Jurisdiction by a Holder who
is or who is deemed to be a non-resident of the Relevant Taxing Jurisdiction in
respect of the acquisition, ownership or disposition of the Notes, including the
receipt of Accreted Value, principal of, premium and interest paid pursuant to
such Notes.
SECTION 5.2 Successor Corporation Substituted. Upon any such
---------------------------------
consolidation, merger, assignment, conveyance, lease, transfer or other
disposition in accordance with Section 5.1, the Successor Company will succeed
to, and be substituted for every duty and obligation of, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such Successor Company had been named as the Company herein, and thereafter
(except in the
<PAGE>
58
case of a sale, assignment, transfer, lease, conveyance or other disposition)
the predecessor corporation will be relieved of all further obligations and
covenants under this Indenture and the Notes.
ARTICLE VI
DEFAULT AND REMEDIES
--------------------
SECTION 6.1 Events of Default. Wherever used herein with respect to any
-----------------
series of the Notes, "Event of Default" means any one of the following events
which shall have occurred and be continuing:
(a) a default for 30 days or more in the payment when due of interest
on the Notes or Additional Amounts, if any, or Liquidated Damages, if any,
with respect to the Notes;
(b) a default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(c) a default in the payment of principal or interest on Notes
required to be purchased pursuant to an Asset Sale Offer as described under
Section 4.16 or pursuant to a Change of Control Offer as described under
Section 4.15;
(d) a failure to perform or comply with the provisions described in
Article V;
(e) a default in the performance of or breach of any other covenant
or agreement of the Company in this Indenture or under the Notes and such
default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the holders of 25% or more in aggregate
principal amount of the Notes;
(f) a default occurs on any other Indebtedness of the Company or any
Restricted Subsidiary if (i) either (x) such default is a failure to pay
principal of such Indebtedness when due after any applicable grace period
or (y) as a result of such default, the maturity of such Indebtedness has
been accelerated prior to its scheduled maturity and such default has not
been cured within the shorter of 30 days and the applicable grace period,
and such acceleration has not been rescinded and (ii) the principal amount
of such Indebtedness, together with the principal amount of any other
Indebtedness of the Company and its Restricted Subsidiaries that is also in
default as to principal, or the maturity of which has also been
accelerated, aggregates (Euro)5.0 million or more;
(g) failure to pay final judgments and orders against the Company or
any Restricted Subsidiary (not covered by insurance) aggregating in excess
of (Euro)5.0 million (treating any deductibles, self-insurance or retention
as not so covered), which final judgments remain unpaid, undischarged and
unstayed for a period in excess of 30 consecutive days following entry of
the final judgment or order that causes the aggregate
<PAGE>
59
amount for all such final judgments or orders outstanding and not paid,
discharged or stayed to exceed (Euro)5.0 million;
(h) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any of its Significant Subsidiaries or
for all or substantially all of the property and assets of the Company or
any of its Significant Subsidiaries or (C) the winding up or liquidation of
the affairs of the Company or any of its Significant Subsidiaries and, in
each case, such decree or order shall remain unstayed and in effect for a
period of 30 consecutive days; or
(i) the Company or any of its Significant Subsidiaries (A) commences
a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Company or any of its Significant Subsidiaries or for all or substantially
all of the property and assets of the Company or any of its Significant
Subsidiaries or (C) effects any general assignment for the benefit of
creditors.
SECTION 6.2 Acceleration. If an Event of Default (other than an Event of
------------
Default specified in Sections 6.1(h) or (i)) occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Company, may declare the
Accreted Value of, premium, if any, interest and other monetary obligations
(including Additional Amounts, if any, and Liquidated Damages, if any) on all
the then outstanding Notes to be immediately due and payable. Upon such a
declaration, such Accreted Value of, premium, if any, interest and other
monetary obligations on the Notes shall be immediately due and payable. In the
event of a declaration of acceleration because an Event of Default set forth in
subsection 6.1(f) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to subsection 6.1(f) shall be
remedied or cured by the Company and/or the relevant Restricted Subsidiaries or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in subsections 6.1(h) or (i) above occurs, the Accreted Value of,
premium, if any, accrued interest and other monetary obligations on the Notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Trustee shall have no obligation to accelerate the Notes if in the best
judgment of the Trustee acceleration is not in the best interest of the Holders
of such Notes.
SECTION 6.3 Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of Accreted Value, principal of or, premium, if
any, interest, Additional Amounts, if
<PAGE>
60
any, or Liquidated Damages, if any, on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
SECTION 6.4 The Trustee May Enforce Claims Without Possession of
----------------------------------------------------
Securities. All rights of action and claims under this Indenture or the Notes
- ----------
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any proceeding relating thereto.
SECTION 6.5 Rights and Remedies Cumulative. Except as otherwise provided
------------------------------
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Notes in Section 2.8, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders of Notes is intended to be exclusive
of any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent or subsequent assertion or employment of any
other appropriate right or remedy.
SECTION 6.6 Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any Holder of any Note to exercise any right or remedy accruing
upon any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article or by law to the Trustee or to the Holders of Notes
may be exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the Holders of Notes.
SECTION 6.7 Waiver of Past Defaults. Subject to Sections 6.10 and 9.2,
-----------------------
at any time after a declaration of acceleration with respect to the Notes as
described in Section 6.1, the Holders of at least a majority in principal amount
at maturity of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the Accreted Value or principal of, premium, if any,
interest and other monetary obligations on the Notes that have become due solely
by such declaration of acceleration, have been cured or waived and (ii) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. Such waiver shall not excuse a continuing Event of
Default in the payment of interest, premium, if any, principal, Accreted Value,
Additional Amounts, if any, or Liquidated Damages, if any, on such Note held by
a non-consenting Holder, or in respect of a covenant or a provision which cannot
be amended or modified without the consent of all Holders. In the event of any
Event of Default specified in subsection 6.1(f), such Event of Default and all
consequences thereof (including, without limitation, any acceleration or
resulting payment default) shall be annulled, waived and rescinded,
automatically and without any action by the Trustee or the Holders of the Notes,
if within 60 days after such Event of Default arose (x) the Indebtedness or
guarantee that is the basis for such Event of Default has been discharged, or
(y) the holders thereof have rescinded or waived the acceleration, notice or
action (as the case may be) giving rise to such Event of Default, or (z) if the
default that is the basis for such Event of Default has been cured. The Company
shall deliver to the Trustee an Officers' Certificate stating that the requisite
percentage
<PAGE>
61
of Holders have consented to such waiver and attaching copies of such consents.
When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.8 Control by Majority. Subject to Section 2.10, the Holders of
-------------------
not less than a majority in principal amount at maturity of the outstanding
Notes may, by written notice to the Trustee, direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. Subject to Section 7.1, however,
the Trustee may refuse to follow any direction that conflicts with any law or
this Indenture that the Trustee determines may be unduly prejudicial to the
rights of another Holder of Notes, or that may involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction.
SECTION 6.9 Limitation on Suits. A Holder of Notes may not pursue any
-------------------
remedy with respect to this Indenture or the Notes unless:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holder or Holders of at least 25% in principal amount at
maturity of the outstanding Notes make a written request to the Trustee to
pursue the remedy;
(ii) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the request within 30 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(v) during such 30-day period the Holder or Holders of a majority in
principal amount at maturity of the outstanding Notes do not give the
Trustee a direction which, in the opinion of the Trustee, is inconsistent
with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.10 Rights of Holders To Receive Payment. Notwithstanding any
------------------------------------
other provision of this Indenture, the right of any Holder to receive payment of
Accreted Value, principal of, premium, if any, interest, Additional Amounts, if
any, and Liquidated Damages, if any, on a Note, on or after the respective due
dates expressed in such Note, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.11 Collection Suit by Trustee. If an Event of Default in
--------------------------
payment of Accreted Value, principal, premium, if any, interest, Additional
Amounts, if any, or Liquidated Damages, if any, specified in subsection 6.1(a)
or (b) occurs and is continuing, the Trustee may recover judgment in its own
name and as trustee of an express trust against the Company or any other obligor
on the Notes for the whole amount of Accreted Value or principal and accrued
<PAGE>
62
interest remaining unpaid, together with interest on overdue principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the Notes
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.7.
SECTION 6.12 Trustee May File Proofs of Claim. The Trustee may file such
--------------------------------
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, accountants and experts) and the Holders allowed in any
judicial proceedings relating to the Company, its creditors or its property or
other obligor on the Notes, its creditors and its property and shall be entitled
and empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian in
any such judicial proceedings is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agent and counsel, and any other amounts due the
Trustee under Section 7.7. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Holders of the Notes may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
SECTION 6.13 Priorities. If the Trustee collects any money or property
----------
pursuant to this Article VI, it shall pay out the money or property in the
following order:
First: to the Trustee, the Agents and their agents and attorneys for
amounts due under Section 7.7, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee and
the costs and expenses of collection;
Second: to Holders for amounts due and unpaid on the Notes for
Accreted Value, principal, premium, if any, interest, Additional Amounts,
if any, and Liquidated Damages, if any, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes
for Accreted Value, principal, premium, if any, interest, Additional
Amounts, if any, and Liquidated Damages, if any, respectively; and
Third: to the Company or any other obligor on the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Company, may fix a record date and
payment date for any payment to Holders pursuant to this Section 6.13; provided
that the failure to give any
<PAGE>
63
such notice shall not affect the establishment of such record date or payment
date for Holders pursuant to this Section 6.13.
SECTION 6.14 Restoration of Rights and Remedies. If the Trustee or any
----------------------------------
Holder of any Note has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee or to such Holder,
then and in every such case, subject to any determination in such proceeding,
the Company, the Trustee and the Holders of Notes shall be restored severally
and respectively to their former positions hereunder and thereafter all rights
and remedies of the Trustee and the Holders of Notes shall continue as though no
such proceeding had been instituted.
SECTION 6.15 Undertaking for Costs. In any suit for the enforcement of
---------------------
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.15 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.10, or a suit
by a Holder or Holders of more than 10% in principal amount at maturity of the
outstanding Notes.
SECTION 6.16 Compliance Certificate; Notices of Default. The Company is
------------------------------------------
required to deliver to the Trustee annually a statement, in the form of an
Officers' Certificate, regarding compliance with this Indenture, and the Company
is required, within five Business Days, upon becoming aware of any Default or
Event of Default or any default under any document, instrument or agreement
representing Indebtedness of the Company, to deliver to the Trustee a statement,
in the form of an Officers' Certificate, specifying such Default or Event of
Default.
ARTICLE VII
TRUSTEE
-------
SECTION 7.1 Duties of Trustee. (a) If an Event of Default actually
-----------------
known to a Trust Officer of the Trustee has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under this Indenture at the
request of any of the Holders of Notes, unless they shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
(b) Except during the continuance of an Event of Default actually known to
the Trustee:
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64
(i) The Trustee and the Agents will perform only those duties as are
specifically set forth herein and no others and no implied covenants or
obligations shall be read into this Indenture against the Trustee or the
Agents.
(ii) In the absence of bad faith on their part, the Trustee and
the Agents may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions and such other documents delivered to the Trustee and conforming
to the requirements of this Indenture. However, in the case of any such
certificates or opinions which by any provision hereof are required to be
furnished to the Trustee, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) This paragraph does not limit the effect of subsection (b) of
this Section 7.1.
(ii) Neither the Trustee nor Agent shall be liable for any error
of judgment made in good faith by a Trust Officer of such Trustee or Agent,
unless it is proved that the Trustee or such Agent was negligent in
ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.8.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or to take or omit to take any action under this
Indenture or take any action at the request or direction of Holders if it shall
have reasonable grounds for believing that repayment of such funds is not
assured to it or it does not receive an indemnity satisfactory to it in its sole
discretion against such risk, liability, loss, fee or expense which might be
incurred by it in compliance with such request or direction.
(e) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to subsections (a),
(b), (c) and (d) of this Section 7.1.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
(g) Any provision hereof relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 7.1 and, upon qualification of this Indenture under
the TIA, the TIA.
<PAGE>
65
SECTION 7.2 Rights of Trustee. Subject to Section 7.1:
-----------------
(a) The Trustee and each Agent may rely conclusively on and shall be
protected from acting or refraining from acting based upon any document
believed by the Trustee or such Agent to be genuine and to have been signed
or presented by the proper person. Neither the Trustee nor any Agent shall
be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent order, approval, appraisal, bond, debenture, note, coupon,
security or other paper or document, but the Trustee or Agent, as the case
may be, in its discretion, may make reasonable further inquiry or
investigation into such facts or matters stated in such document and if the
Trustee or Agent, as the case may be, shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, at reasonable times during normal
business hours, personally or by agent or attorney and neither the Trustee
nor any Agent shall incur any liability or additional liability of any kind
by reason of such inquiry or investigation. The Trustee shall not be
deemed to have notice or any knowledge of any matter (including without
limitation Defaults or Events of Default) unless a Trust Officer assigned
to and working in the Trustee's Corporate Trust Administration has actual
knowledge thereof or unless written notice thereof is received by the
Trustee, Attention: Corporate Trust Administration, and such notice
references the Notes generally, the Company or this Indenture;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate or
Company Order and any resolution of the Board of Directors, as the case may
be, may be sufficiently evidenced by a Board Resolution;
(c) Before the Trustee and any Agent acts or refrains from acting,
the Trustee or such Agent may require an Officers' Certificate or an
Opinion of Counsel or both, which shall conform to the provisions of
Sections 12.4 and 12.5. Neither the Trustee nor any Agent shall be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(d) The Trustee and any Agent may act through its respective
attorneys and agents and shall not be responsible for the misconduct or
negligence of any agent or attorney appointed with due care.
(e) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers conferred upon it by this Indenture; provided,
however, that the Trustee's conduct does not constitute willful misconduct,
negligence or bad faith.
(f) The Trustee or any Agent may consult with counsel of its
selection and the advice or opinion of such counsel shall be full and
complete authorization and protection from liability in respect of any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
<PAGE>
66
(g) Subject to Section 9.2 hereof, the Trustee may (but shall not be
obligated to), without the consent of the Holders, give any consent, waiver
or approval required by the terms hereof, but shall not without the consent
of the Holders of not less than a majority in aggregate principal amount at
maturity of the Notes at the time outstanding (i) give any consent, waiver
or approval or (ii) agree to any amendment or modification of this
Indenture, in each case, that shall have a material adverse effect on the
interests of any Holder. The Trustee shall be entitled to request and
conclusively rely on an Opinion of Counsel with respect to whether any
consent, waiver, approval, amendment or modification shall have a material
adverse effect on the interests of any Holder.
(h) the rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in
each of its capacities hereunder, and to each agent, custodian and other
Person employed to act hereunder or in connection with the transactions
contemplated hereby.
SECTION 7.3 Individual Rights of Trustee. The Trustee in its individual
----------------------------
or any other capacity may become the owner or pledgee of Notes and may otherwise
deal with the Company, its Subsidiaries, or their respective Affiliates with the
same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. The Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4 Trustee's Disclaimer. The Trustee and the Agents shall not
--------------------
be responsible for and make no representation as to the validity, effectiveness
or adequacy of this Indenture or the Notes; the Trustee and the Agents shall not
be accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company or upon the Company's direction under
any provision hereof; the Trustee shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee;
and the Trustee and the Agents shall not be responsible for any statement or
recital herein of the Company, or any document issued in connection with the
sale of Notes or any statement in the Notes other than the Trustee's certificate
of authentication.
SECTION 7.5 Notice of Default. If an Event of Default occurs and is
-----------------
continuing and a Trust Officer of the Trustee receives actual notice of such
event, the Trustee shall mail to each Holder, as their names and addresses
appear on the list of Holders described in Section 2.5, notice of the uncured
Default or Event of Default within 90 days after the Trustee receives such
notice. Except in the case of a Default or Event of Default in payment of
Accreted Value or principal of, premium, if any, interest, Additional Amounts,
if any, or Liquidated Damages, if any, on any Note, including the failure to
make payment on (i) the Change of Control Payment Date pursuant to a Change of
Control Offer or (ii) the Asset Sale Purchase Date pursuant to an Asset Sale
Offer, the Trustee may withhold the notice if and so long as a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interest of the Holders.
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67
SECTION 7.6 Report by Trustee to Holders. This Section 7.6 shall not be
----------------------------
operative as a part of this Indenture until this Indenture is qualified under
the TIA, and, until such qualification, this Indenture shall be construed as if
this Section 7.6 were not contained herein.
Within 60 days after each July 15 beginning with July 15, 2000, the Trustee
shall, to the extent that any of the events described in TIA Section 313(a)
occurred within the previous twelve months, but not otherwise, mail to each
Holder a brief report dated as of such date that complies with TIA Section
313(a). The Trustee also shall comply with TIA Sections 313(b), 313(c) and
313(d).
A copy of each report at the time of its mailing to Holders shall be mailed
to the Company and filed with the Commission and each securities exchange, if
any, on which the Notes are listed.
The Company shall promptly notify the Trustee if subsequent to the date
hereof the Notes become listed on any securities exchange or of any delisting
thereof.
SECTION 7.7 Compensation and Indemnity. The Company shall pay to the
--------------------------
Trustee from time to time such compensation as the Company and the Trustee shall
from time to time agree in writing for its acceptance of this Indenture and
services hereunder. The Trustee's and the Agents' compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee and the Agents upon request for all reasonable
disbursements, expenses and advances (including reasonable fees and expenses of
counsel) incurred or made by it in addition to the compensation for their
services, except any such disbursements, expenses and advances as may be
attributable to the Trustee's or any Agent's negligence or bad faith. Such
expenses shall include the reasonable compensation, disbursements and expenses
of the Trustee's and Agents' accountants, experts and counsel and any taxes or
other expenses incurred by a trust created pursuant to Section 8.4 hereof.
The Company shall indemnify each of the Trustee, any predecessor Trustee
and the Agents for, and hold them harmless against, any and all loss, damage,
claim, expense or liability including taxes (other than taxes based on the
income of the Trustee) incurred by the Trustee or an Agent without negligence,
willful misconduct or bad faith on its part in connection with the acceptance or
administration of this trust and its duties under this Indenture, including the
reasonable expenses and attorneys' fees and expenses of defending itself against
any claim or liability arising hereunder. The Trustee and the Agents shall
notify the Company promptly of any claim asserted against the Trustee or such
Agent for which it may seek indemnity. However, the failure by the Trustee or
the Agent to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee or
such Agent shall cooperate in the defense (and may employ its own counsel
reasonably satisfactory to the Trustee) at the Company's expense. The Trustee
or such Agent may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its written consent, which consent shall not be unreasonably
withheld. The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee or such Agent as a result of the
violation of this Indenture
<PAGE>
68
by the Trustee or such Agent if such violation arose from the Trustee's or such
Agent's negligence or bad faith.
When the Trustee or an Agent incurs expenses or renders services after the
occurrence of an Event of Default specified in subsection 6.1(h) or (i), the
expenses (including the reasonable fees and expenses of its agents and counsel)
and the compensation for the services shall be preferred over the status of the
Holders in a proceeding under any Bankruptcy Law and are intended to constitute
expenses of administration under any Bankruptcy Law. The Company's obligations
under this Section 7.7 and any claim arising hereunder shall survive the
termination of this Indenture, the resignation or removal of any Trustee or
Agent, the discharge of the Company's obligations pursuant to Article VIII and
any rejection or termination under any Bankruptcy Law.
The provisions of this Section 7.7 shall survive the termination of this
Indenture.
SECTION 7.8 Replacement of Trustee. The Trustee may resign at any time
----------------------
by so notifying the Company in writing. The Holders of a majority in principal
amount at maturity of the outstanding Notes may remove the Trustee by so
notifying the Company and the Trustee in writing and may appoint a successor
trustee with the Company's consent. A resignation or removal of the Trustee and
appointment of a successor Trustee shall become effective only upon the
successor Trustee's acceptance of appointment as provided in this section. The
Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(iii) a receiver or other public officer takes charge of the Trustee
or its property; or
(iv) the Trustee becomes incapable of acting with respect to its
duties hereunder.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall notify each Holder of such event
and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount at
maturity of the then outstanding Notes may, with the Company's consent, appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after that, the
retiring Trustee shall transfer, after payment of all sums then owing to the
Trustee pursuant to Section 7.7, all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.7, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
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69
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount at maturity of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder who has been a Holder
for at least six months fails to comply with Section 7.10, such Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee and the Company shall pay to any replaced or removed
Trustee all amounts owed under Section 7.7 upon such replacement or removal.
SECTION 7.9 Successor Trustee by Merger, etc.. If the Trustee
---------------------------------
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee. In case any Notes shall
have been authenticated, but not delivered, by the Trustee then in office, any
successor by consolidation, merger or conversion to such authenticating Trustee
may adopt such authentication and deliver the Notes so authenticated with the
same effect as if such successor Trustee had itself authenticated such Notes.
SECTION 7.10 Corporate Trustee Required; Eligibility. There shall be at
---------------------------------------
all times a Trustee hereunder which shall be eligible to act as Trustee under
the TIA and shall have a combined capital and surplus of at least $50,000,000
and have its Corporate Trust Office in the Borough of Manhattan, The City of New
York. If such Person publishes reports of condition at least annually, pursuant
to law or to the requirements of a Federal, State or District of Columbia
supervising or examining authority within the United States of America, then for
the purposes of this Section, the combined capital and surplus of such Person
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
SECTION 7.11 Disqualification; Conflicting Interests. If the Trustee has
---------------------------------------
or shall acquire a conflicting interest within the meaning of the TIA, the
Trustee shall either eliminate such interest or resign, to the extent and in the
manner provided by, and subject to the provisions of, the TIA and this
Indenture.
SECTION 7.12 Preferential Collection of Claims Against Company. The
-------------------------------------------------
Trustee, in its capacity as Trustee hereunder, shall comply with TIA Section
311(a), excluding any creditor relationship listed in TIA Section 311(b). A
Trustee who has resigned or been removed shall be subject to TIA Section 311(a)
to the extent indicated.
<PAGE>
70
ARTICLE VIII
SATISFACTION AND DISCHARGE OF INDENTURE
---------------------------------------
SECTION 8.1 Option to Effect Legal Defeasance or Covenant Defeasance.
--------------------------------------------------------
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, with respect to
the Notes, elect to have either Section 8.2 or 8.3 be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article VIII.
SECTION 8.2 Legal Defeasance and Discharge. Upon the Company's exercise
------------------------------
under Section 8.1 of the option applicable to this Section 8.2, the Company
shall be deemed to have been discharged from its obligations with respect to all
outstanding Notes on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance
----------------
means that the Company shall be deemed to have paid and discharged all the
Obligations relating to the outstanding Notes and the Notes shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.6, Section 8.8 and
the other Sections of this Indenture referred to below in this Section 8.2, and
to have satisfied all of their other obligations under such Notes and this
Indenture and cured all then existing Events of Default (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive payments in respect of the Accreted Value or
principal of, premium, if any, interest, Additional Amounts, if any, and
Liquidated Damages, if any, on such Notes when such payments are due or on the
Redemption Date solely out of the trust created pursuant to this Indenture; (b)
the Company's obligations with respect to Notes concerning issuing temporary
Notes, or, where relevant, registration of such Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust; (c) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith; and (d) this Article VIII and the obligations set forth in
Section 8.6 hereof.
Subject to compliance with this Article VIII, the Company may exercise its
option under Section 8.2 notwithstanding the prior exercise of its option under
Section 8.3 with respect to the Notes.
SECTION 8.3 Covenant Defeasance. Upon the Company's exercise under
-------------------
Section 8.1 of the option applicable to this Section 8.3, the Company shall be
released from any obligations under the covenants contained in Sections 4.3,
4.4, 4.10, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.22, 4.23 and 5.1
hereof with respect to the outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
-------------------
and the Notes shall thereafter be deemed not "outstanding" for the purposes of
any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Notes, the
<PAGE>
71
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or Event of Default under subsection 6.1(e), nor shall any event
referred to in subsection 6.1(f) or (g) thereafter constitute a Default or Event
of Default, but, except as specified above, the remainder of this Indenture and
such Notes shall be unaffected thereby.
SECTION 8.4 Conditions to Legal or Covenant Defeasance. The following
------------------------------------------
shall be the conditions to the application of either Section 8.2 or Section 8.3
to the outstanding Notes:
(i) the Company must irrevocably deposit, or cause to be irrevocably
deposited, with the Trustee, in trust, for the benefit of the Holders of
the Notes, cash in U.S. dollars, U.S. Government Securities or a
combination thereof in such amounts as will be sufficient, in the opinion
of an internationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, interest, Additional Amounts, if
any, and Liquidated Damages, if any, due on the outstanding Notes on the
stated maturity date or on the applicable Redemption Date, as the case may
be, of such principal, premium, if any, interest, Additional Amounts, if
any, and Liquidated Damages, if any, due on the outstanding Notes;
(ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee (A) an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, (1) the Company has received from, or there has
been published by, the U.S. Internal Revenue Service a ruling or (2) since
the Issue Date, there has been a change in the applicable U.S. federal
income tax law, in either case to the effect that, and based thereon such
Opinion of Counsel in the United States shall confirm that, subject to
customary assumptions and exclusions, the Holders of the outstanding Notes
will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such Legal Defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred
and (B) an Opinion of Counsel in The Federal Republic of Germany reasonably
acceptable to the Trustee to the effect that (1) Holders will not recognize
income, gain or loss for German income tax purposes as a result of such
Legal Defeasance and will be subject to German income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred and (2) payments from the
defeasance trust will be free and exempt from any and all withholding and
other income taxes of whatever nature imposed or levied by or on behalf of
the German government or any political subdivision thereof or therein
having the power to tax;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee (A) an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax
<PAGE>
72
purposes as a result of such Covenant Defeasance and will be subject to
such tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred and
(B) an Opinion of Counsel in The Federal Republic of Germany reasonably
acceptable to the Trustee to the effect that (1) Holders will not recognize
income, gain or loss for German income tax purposes as a result of such
Covenant Defeasance and will be subject to German income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred and (2) payments from the
defeasance trust will be free and exempt from any and all withholding and
other income taxes of whatever nature imposed or levied by or on behalf of
the German government or any political subdivision thereof or therein
having the power to tax;
(iv) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the date of such
deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under any material
agreement or instrument to which the Company is a party or by which the
Company is bound;
(vi) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable German law or U.S. federal or state law, and that the
Trustee has a perfected security interest in such trust funds for the
ratable benefit of the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States (which opinion
of counsel may be subject to customary assumptions and exclusions) each
stating that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SECTION 8.5 Satisfaction and Discharge of Indenture. This Indenture will
---------------------------------------
be discharged and will cease to be of further effect as to all Notes issued
thereunder when either (i) all such Notes theretofore authenticated and
delivered (except lost, stolen or destroyed Notes which have been replaced or
paid and Notes for whose payment money has theretofore been deposited in trust
and thereafter repaid to the Company) have been delivered to the Trustee for
cancellation or (ii) (A) all such Notes not theretofore delivered to such
Trustee for cancellation have become due and payable by reason of the making of
a notice of redemption or otherwise or will become due and payable within one
year and the Company has irrevocably deposited or caused to be deposited with
such Trustee as trust funds in trust an amount of money sufficient to
<PAGE>
73
pay and discharge the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation for principal, premium, if any, and
accrued and unpaid interest, Additional Amounts, if any, and Liquidated Damages,
if any, to the date of maturity or redemption; (B) no Default with respect to
this Indenture or the Notes shall have occurred and be continuing on the date of
such deposit or shall occur as a result of such deposit and such deposit will
not result in a breach or violation of, or constitute a default under, any other
instrument to which the Company is a party or by which it is bound; (C) the
Company has paid, or caused to be paid, all sums payable by it under this
Indenture; and (D) the Company has delivered irrevocable instructions to the
Trustee under this Indenture to apply the deposited money toward the payment of
such Notes at maturity or the Redemption Date, as the case may be. In addition,
the Company must deliver an Officers' Certificate and an Opinion of Counsel to
the Trustee stating that all conditions precedent to satisfaction and discharge
have been satisfied.
SECTION 8.6 Survival of Certain Obligations. Notwithstanding the
-------------------------------
satisfaction and discharge of this Indenture and of the Notes referred to in
Section 8.1, 8.2, 8.3, 8.4 or 8.5, the respective obligations of the Company and
the Trustee under Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.10, 2.11, 2.12, 2.13,
2.14, 4.1, 4.2, 4.5, 4.21, 6.10, Article VII, 8.7, 8.8, 8.9 and 8.10 shall
survive until the Notes are no longer outstanding, and thereafter the
obligations of the Company and the Trustee under Sections 7.7, 8.7, 8.8, 8.9 and
8.10 shall survive. Nothing contained in this Article VIII shall abrogate any
of the obligations or duties of the Trustee under this Indenture.
SECTION 8.7 Acknowledgment of Discharge by Trustee. Subject to Section
--------------------------------------
8.10, after (i) the conditions of Section 8.4 or 8.5 have been satisfied, (ii)
the Company has paid or caused to be paid all other sums payable hereunder by
the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon written
request shall acknowledge in writing the discharge of all of the Company's
obligations under this Indenture except for those surviving obligations
specified in this Article VIII.
SECTION 8.8 Application of Trust Moneys. All cash in U.S. dollars and
---------------------------
U.S. Government Securities deposited with the Trustee pursuant to Section 8.4 or
8.5 in respect of Notes shall be held in trust and applied by it, in accordance
with the provisions of such Notes and this Indenture, to the payment, either
directly or through any Paying Agent as the Trustee may determine, to the
Holders of the Notes of all sums due and to become due thereon for principal,
premium, if any, interest, Additional Amounts, if any, and Liquidated Damages,
if any, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Securities
deposited pursuant to Section 8.4 or 8.5 or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of outstanding Notes.
SECTION 8.9 Repayment to the Company; Unclaimed Money. The Trustee and
-----------------------------------------
any Paying Agent shall promptly pay or return to the Company upon Company Order
any cash or U.S. Government Securities held by them at any time that are not
required for the payment of the
<PAGE>
74
principal of, premium, if any, interest, Additional Amounts, if any, and
Liquidated Damages, if any, on the Notes for which cash or U.S. Government
Securities have been deposited pursuant to Section 8.4 or 8.5.
Any money held by the Trustee or any Paying Agent under this Article, in
trust for the payment of the principal of, premium, if any, interest, Additional
Amounts, if any, and Liquidated Damages, if any, on any Note and remaining
unclaimed for two years after such principal, premium, if any, interest,
Additional Amounts, if any, and Liquidated Damages, if any, has become due and
payable shall be paid to the Company upon Company Order or if then held by the
Company shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company give notice to the Holders or cause to be
published notice once, in a leading newspaper having a general circulation in
New York (which is expected to be The Wall Street Journal) and in Frankfurt
(which is expected to be the Frankfurter Allgemeine Zeitung) (and, if and so
long as the Notes are listed, admitted or eligible for trading on a stock
exchange or trading market, in a newspaper having a general circulation in the
locations which such stock exchange or trading market requires) or in the case
of Definitive Notes, such notice shall be made by first-class mail to Holders,
postage prepaid, at their respective addresses as they appear on the
registration books of the Registrar (and, if and so long as the Notes are
listed, admitted or eligible for trading on a stock exchange or trading market
and the rules of such stock exchange or trading market shall so require, by
publication in a newspaper having a general circulation in the locations which
such stock exchange or trading market requires), that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 8.10 Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any cash or U.S. Government Securities, as applicable, in accordance with
Section 8.2, 8.3, 8.4 or 8.5 by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2, 8.3, 8.4 or 8.5 until such time as
the Trustee or Paying Agent is permitted to apply all such cash or U.S.
Government Securities in accordance with Section 8.2, 8.3, 8.4 or 8.5; provided,
however, that if the Company has made any payment of interest on, premium, if
any, principal, Additional Amounts, if any, and Liquidated Damages, if any, of
any Notes because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Securities, as applicable, held by the Trustee
or Paying Agent.
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75
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
-----------------------------------
SECTION 9.1 Without Consent of Holders of Notes. Notwithstanding Section
-----------------------------------
9.2 hereof, the Company and the Trustee together may amend or supplement this
Indenture or the Notes without the consent of any Holder of a Note (i) to cure
any ambiguity, omission, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, or to
provide for additional forms of global Notes containing transfer and other
restrictions and which comply with applicable U.S. securities and other laws,
(iii) to comply with the covenant relating to mergers, consolidations and sales
of assets, (iv) to provide for the assumption of the Company's obligations to
Holders of such Notes, (v) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under this Indenture of any such Holder, (vi) to add covenants
for the benefit of the Holders or to surrender any right or power conferred upon
the Company, or (vii) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA.
Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such amendment or supplemental indenture, and
upon receipt by the Trustee of the documents described in Section 9.6, the
Trustee shall join with the Company in the execution of any amended or
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental indenture which adversely affects its own rights, duties
or immunities hereunder or otherwise.
SECTION 9.2 With Consent of Holders of Notes. The Company and the
--------------------------------
Trustee may amend or supplement this Indenture or the Notes or any amended or
supplemental indenture with the written consent of the Holders of at least a
majority in principal amount at maturity of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Notes), and any existing Default or Event of Default and its
consequences or compliance with any provision of this Indenture or the Notes may
be waived with the consent of the Holders of at least a majority in principal
amount at maturity of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Notes). However,
without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a nonconsenting Holder of Notes): (i) reduce
the principal amount at maturity of the Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the Accreted Value of or change the
fixed maturity of any such Note or alter or waive the provisions with respect to
the redemption of the Notes, (iii) reduce the rate of or change the time for
payment of interest on any Note, (iv) waive a Default in the payment of Accreted
Value or principal of, or premium, if any, interest, Additional Amounts, if any,
or Liquidated Damages, if any, on, the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount at maturity of the Notes and a waiver of the payment default
that resulted from such acceleration with respect to the Notes) or in respect of
a covenant or provision contained in this Indenture which cannot be amended or
modified without the consent of all Holders, (v) make any Note payable in money
other than that stated in the Notes,
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76
(vi) make any change in the provisions of this Indenture relating to waivers of
past Defaults or the rights of Holders of the Notes to receive payments of
Accreted Value or principal of, premium, interest, Additional Amounts, if any,
or Liquidated Damages, if any, on, such Notes, (vii) make any change in the
amendment and waiver provisions contained in this Indenture, (viii) make any
change in paragraph 3 of the Notes that adversely affects the rights of any
Holder of the Notes, (ix) amend the terms of the Notes or this Indenture in a
way that would result in the loss of an exemption from any Taxes or an exemption
from any obligation to withhold or deduct Taxes unless the Company agrees to pay
Additional Amounts, if any, in respect thereof, (x) impair the right of any
Holder of the Notes to receive payment of Accreted Value or principal of,
interest and Liquidated Damages, if any, on, such Holder's Notes on or after the
due dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Notes.
Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 9.6, the Trustee shall join with the Company
in the execution of such amended or supplemental indenture unless such amended
or supplemental indenture adversely affects the Trustee's own rights, duties or
immunities hereunder or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver.
SECTION 9.3 Compliance with TIA. From the date on which this Indenture is
-------------------
qualified under the TIA, every amendment, waiver or supplement of this Indenture
or the Notes shall comply with the TIA as then in effect.
SECTION 9.4 Revocation and Effect of Consents. Until an amendment,
---------------------------------
supplement or waiver becomes effective, a consent to it by a Holder of a Note is
a continuing consent by the Holder of a Note and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder of a Note or subsequent Holder of a Note may revoke the consent
as to its Note if the Trustee receives written notice of revocation before the
date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder of a Note.
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77
The Company may fix a record date for determining which Holders of the
Notes must consent to such amendment, supplement or waiver. If the Company fixes
a record date, the record date shall be fixed at (i) the later of 30 days prior
to the first solicitation of such consent or the date of the most recent list of
Holders of Notes furnished to the Trustee prior to such solicitation pursuant to
Section 2.5 or (ii) such other date as the Company shall designate.
SECTION 9.5 Notation on or Exchange of Notes. The Trustee may place an
--------------------------------
appropriate notation about an amendment, supplement or waiver on any Note
thereafter authenticated. The Company in exchange for all Notes may issue and
the Trustee shall authenticate new Notes that reflect the amendment, supplement
or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.6 Trustee to Sign Amendments, etc.. The Trustee shall execute
--------------------------------
any amendment, supplement or waiver authorized pursuant to this Article IX;
provided, however, that the Trustee may, but shall not be obligated to, execute
any such amendment, supplement or waiver which adversely affects the Trustee's
own rights, duties or immunities under this Indenture. The Trustee shall be
entitled to receive indemnity reasonably satisfactory to it, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article IX is authorized or permitted by this
Indenture and constitutes the legal, valid and binding obligations of the
Company enforceable in accordance with its terms. Such Opinion of Counsel shall
not be an expense of the Trustee.
SECTION 9.7 Senior Indebtedness. Notwithstanding anything in this Article
-------------------
IX to the contrary, no amendment may be made to Article XI hereof or to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any trustee, group or representative thereof authorized
to give a consent) consent to such change.
ARTICLE X
CONVERSION
----------
SECTION 10.1 Right to Convert; Mandatory Conversion. (a) Subject to and
--------------------------------------
upon compliance with the provisions of this Indenture, at any time on or after
365 days after the Issue Date and on or before the Maturity Date, each Holder
shall have the right, at its option, to convert the Accreted Value of any Note,
or any portion of such Accreted Value, into that number of validly issued, fully
paid and nonassessable shares of Common Stock (as such shares shall then be
constituted) (the "Conversion Shares") obtained by dividing the aggregate
-----------------
Accreted Value of the Note or portion thereof surrendered for conversion (on the
date of conversion) by $25.00, subject to adjustment as set forth in Section
10.5, below (the "Conversion Ratio").
----------------
<PAGE>
78
(b) Notwithstanding anything in this Section 10.1 to the contrary, the
right to convert with respect to any Note or portion of a Note that shall be
called for redemption or delivered for repurchase, shall terminate at the close
of business on the Trading Day next preceding the Redemption Date, unless the
Company shall default in payment due upon redemption or repurchase thereof.
(c) In addition to the rights of the Holders to convert the Notes as set
forth in Sections 10.1(a) and 10.1(b), above, if the closing price of the Common
Stock on the Neuer Markt during any period (or portion of a period) described
below has exceeded the price for such period (or portion of a period) referred
to below for at least 30 consecutive Trading Days ("Market Criteria," with the
---------------
30-day period being referred to as the "Market Criteria Period"), and the
----------------------
Conversion Shelf Registration Statement (as defined in the Registration Rights
Agreement) is effective and available, then , on the next succeeding Trading
Day, all of the Notes will be automatically converted into that number of
Conversion Shares derived by application of the Conversion Ratio specified in
Section 10.1(a) above; provided, however, that if the Market Criteria is
satisfied during the first 365 days after the Closing Date, the conversion will
not occur until the one-year anniversary of the Closing Date and will occur only
if the closing price on the Neuer Markt of the Common Stock is at least
(Euro)32.00 on such date:
12 Months Beginning Closing Price
------------------- -------------
August 15, 1999 (Euro) 32.00
August 15, 2000 (Euro) 38.46
August 15, 2001 (Euro) 44.92
August 15, 2002 (Euro) 51.37
August 15, 2003 (Euro) 57.83
The Company shall promptly take all steps necessary to provide for the issuance
of shares of Common Stock to the Holders of Notes in connection with any such
mandatory conversion of the Notes and, upon such conversion, the Notes shall
cease to be outstanding and interest, premium, Additional Amounts, if any, and
Liquidated Damages, if any, on such Notes shall cease to accrue (and Accreted
Value shall cease to increase). If, on or after the date which is 365 days after
the Closing Date, the Notes would be automatically converted pursuant to the
terms hereof but for the fact that the Conversion Shelf Registration Statement
is not then effective and available, then the Notes shall be automatically
converted on the next date that such Conversion Shelf Registration Statement
becomes effective and available (but only if on such date of conversion, the
closing price on the Neuer Markt is equal to or exceeds the price referred to in
the table above for such date).
(d) No Holder or holder of any beneficial interest in any Note is entitled
to any rights of a holder of Common Stock (including, without limitation,
receipt of dividends or other distributions, notices of meetings of
stockholders, consents to actions of stockholders or notices of any other
stockholder proceedings) until such Holder has converted his Notes to Common
Stock (or such time as they may have been automatically converted pursuant to
the provisions of Section 10.1(c), as the case may be), and only to the extent
such Notes are deemed to have been converted to Common Stock under this Article
X.
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79
SECTION 10.2 Exercise of Conversion Privilege; Issuance of Common Stock on
-------------------------------------------------------------
Conversion; No Adjustment for Interest or Dividends. In order to effect the
- ---------------------------------------------------
conversion of any Note into Conversion Shares pursuant to Section 10.1(a), the
Holder of any Note to be converted in whole or in part shall surrender such
Note, duly endorsed, at an office or agency maintained by the Company pursuant
to Section 2.3, accompanied by the funds, if any, required by the last paragraph
of this Section 10.2, and shall give written notice of conversion in the form
provided on the Notes (or such other notice that is acceptable to the Company)
to the Company at such office or agency that the Holder elects to convert such
Note or the portion thereof specified in such notice, stating the name or names
(with address) in which the certificate or certificates for Conversion Shares
that shall be issuable on such conversion shall be issued. Each Note surrendered
for conversion shall, unless the Conversion Shares are to be issued in the same
name as the registration under such Note, be duly endorsed by, or be accompanied
by instruments of transfer in form satisfactory to the Company duly executed by,
the Holder or his duly authorized attorney, and such instruments shall be
accompanied by amounts sufficient to pay all transfer taxes payable upon
issuance of Conversion Shares in such other name or names. Other than such
transfer taxes, the Company shall pay any and all other taxes (other than taxes
based upon income) that may be payable in respect of any issue or delivery of
Conversion Shares. The Holder may not withdraw its conversion notice after
receipt of the Company's notice of its election regarding conversion.
As promptly as practicable (and in any event no later than ten Business
Days) after the surrender of such Note and the receipt of such notice and funds,
if any, as aforesaid, the Trustee shall instruct the Company to and the Company
shall issue and shall deliver at such office or agency to such Holder, or on his
written order, (i) a certificate or certificates for the number of full
Conversion Shares or portion thereof in accordance with the provisions of this
Article X and (ii) a check or cash in respect of any fractional interest in
respect of a share of Common Stock arising upon such conversion as provided in
Section 10.3. In case any Note of a denomination greater than $1,000 shall be
surrendered for partial conversion, and subject to Article II, the Company shall
execute and the Trustee shall authenticate and deliver to or upon the written
order of the Holder thereof, without charge to him, a new Note or Notes in
authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected on the date on which
such Note shall have been surrendered (accompanied by the funds, if any,
required by the last paragraph of this Section 10.2) and such notice shall have
been received by the Company, as aforesaid, and the person in whose name any
certificate or certificates for Conversion Shares shall be issuable upon such
conversion shall be deemed to have become on said date the holder of record of
the Conversion Shares represented thereby; provided, however, that in the event
of any such surrender on any date when the stock transfer books of the Company
shall be closed, the Person in whose name any certificate or certificates for
Conversion Shares shall be issuable upon such conversion shall be deemed to have
become the holder of record of the Conversion Shares on the next day on which
such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date upon which such Note shall have been
surrendered.
Any Note or portion thereof surrendered for conversion during the period
from the close of business on a Record Date to the opening of business on the
next succeeding Interest Payment
<PAGE>
80
Date shall (unless such Note or portion thereof being converted shall have been
called for redemption on a date in such period) be accompanied by payment, in
funds acceptable to the Company, of an amount equal to the interest otherwise
payable on such Interest Payment Date on the Accreted Value being converted;
provided, however, that no such payment need be made if there shall exist at the
time of conversion a default in the payment of interest on the Notes. An amount
equal to such payment shall be paid by the Company on such Interest Payment Date
to the holder of such Note at the close of business on such Record Date;
provided, however, that if the Company shall default in the payment of interest
on such Interest Payment Date, such amount shall be paid to the Person who made
such required payment. Except as provided above in this Section 10.2, no
adjustment shall be made for interest accrued on any Note converted or for
dividends on any shares on the conversion of such Note as provided in this
Article X. If any Note or portion thereof which has been called for redemption
on a date during the period from the close of business on a Record Date for any
Interest Payment Date to the opening of business on such Interest Payment Date
is surrendered for conversion during such period, no interest shall be payable
to the Holder on account of such Note or portion thereof.
SECTION 10.3 Cash Payments in Lieu of Fractional Shares. No fractional
------------------------------------------
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same Holder, the number of full shares which shall
be issuable upon conversion shall be computed on the basis of the aggregate
Accreted Value of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered. If any fractional share of Common Stock would
be issuable upon the conversion of any Note or Notes, the Company shall make an
adjustment therefor in cash at the current market value thereof. The current
market value of a share of Common Stock shall be the Closing Price on the Neuer
Markt on the last Trading Day prior to the day on which the Notes (or specified
portions thereof) are deemed to have been converted and such Closing Price shall
be determined as provided in subsection (f) of Section 10.5.
SECTION 10.4 Conversion Price. The conversion price shall be as specified
----------------
in the form of Note hereinabove set forth, subject to adjustment as provided in
this Article (the "Conversion Price").
----------------
SECTION 10.5 Adjustment of Conversion Price. (a) In case the Company shall
------------------------------
(i) pay a dividend, or make a distribution, in shares of its Common Stock on its
Common Stock, (ii) subdivide its outstanding Common Stock into a greater number
of shares or (iii) combine its outstanding Common Stock into a smaller number of
shares, the denominator of the Conversion Ratio in effect immediately prior
thereto shall be adjusted so that the Holder of any Note thereafter surrendered
for conversion shall be entitled to receive the number of shares of Common Stock
of the Company that he would have owned or have been entitled to receive after
the happening of any of the events described above had such Note been converted
immediately before the happening of such event. An adjustment made pursuant to
this subsection (a) shall become effective immediately after the record date in
the case of a dividend and shall become effective immediately after the
effective date in the case of subdivision or combination.
(b) In case the Company shall issue rights or warrants to all holders of
its Common Stock entitling them (for a period expiring within 45 days after the
record date mentioned below) to
<PAGE>
81
subscribe for or purchase Common Stock at a price per share less than the
Current Market Price per share of Common Stock at the record date for the
determination of stockholders entitled to receive such rights or warrants,
except as provided in subsection (f) below, the denominator of the Conversion
Ratio in effect immediately prior thereto shall be adjusted so that the same
shall equal the price determined by multiplying the denominator of the
Conversion Ratio in effect immediately before the date of issuance of such
rights or warrants by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Current Market Price
(determined by multiplying the total number of shares by the exercise price of
such rights or warrants and dividing the product so obtained by the Current
Market Price), and of which the denominator shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants plus
the number of additional shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made successively whenever any such rights or
warrants are issued, and shall become effective immediately after such record
date. Except as provided in subsection (f) below, in determining whether any
rights or warrants entitle the holders to subscribe for or purchase shares of
Common Stock at less than such Current Market Price, and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received by the Company for such rights or
warrants, the value of such consideration, if other than cash, to be determined
in good faith by the Board of Directors whose determination shall be conclusive
and described in an Officers' Certificate filed with the Trustee. Upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the denominator of the Conversion Ratio
pursuant to this subsection (b), if any such right or warrant shall expire and
shall not have been exercised, the denominator of the Conversion Ratio shall
immediately upon such expiration be recomputed to the denominator of the
Conversion Ratio which would have been in effect had the adjustment of the
denominator of the Conversion Ratio made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised. If the Company shall at any time
issue two or more securities as a unit and one or more of such securities shall
be rights or warrants for Common Stock subject to this Section 10.5(b), the
consideration allocated to each such security shall be determined in good faith
by the Board of Directors whose determination shall be conclusive and described
in an Officers' Certificate filed with the Trustee.
(c) In case the Company shall distribute to all holders of its Common
Stock any shares of Capital Stock of the Company (other than Common Stock) or
evidences of its indebtedness or assets or rights or warrants to subscribe for
or purchase any of its securities (including securities but excluding those
rights, warrants, dividends and distributions referred to in subsections (a) and
(b) above and dividends and distributions in connection with the liquidation,
dissolution or winding up of the Company or paid in cash), then, except as
provided in subsection (f) below, in each such case the denominator of the
Conversion Ratio shall be adjusted so that the same shall equal the price
determined by multiplying the denominator of the Conversion Ratio in effect
immediately before the date of such distribution by a fraction of which the
numerator shall be the Current Market Price per share of the Common Stock on the
record date mentioned below less the Fair Market Value on such record date (as
determined by the Board of Directors, whose
<PAGE>
82
determination shall be conclusive, and described in an Officers' Certificate
filed with the Trustee) of the portion of the Capital Stock or assets or
evidences of indebtedness so distributed or of such rights or warrants
applicable to one share of Common Stock, and the denominator shall be the
Current Market Price per share of the Common Stock on such record date. Such
adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to received such distribution, except as
provided in subsection (f) below.
(d) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of its Common Stock cash (excluding (x) any quarterly
cash dividend on the Common Stock to the extent the aggregate cash dividend per
share of Common Stock in any fiscal quarter does not exceed the greater of (i)
the amount per share of Common Stock of the next preceding quarterly cash
dividend on the Common Stock to the extent not requiring any adjustment of the
denominator of the Conversion Ratio pursuant to this subparagraph (d) (as
adjusted to reflect subdivisions or combinations of the Common Stock) and (ii)
3.75% of the average of the daily Closing Prices on The Neuer Markt of the
Common Stock, for the ten consecutive Trading Days immediately prior to the date
of declaration of such dividend and (y) any dividend or distribution in
connection with the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary), then, in such case, unless the Company elects
to reserve such cash for distribution to the Holders of the Notes upon the
conversion of the Notes so that any such Holder converting Notes will receive
upon such conversion, in addition to the Conversion Shares to which such Holder
is entitled, the amount of cash which such Holder would have received if such
Holder had, immediately prior to the record date for such distribution of cash,
converted its Notes into Conversion Shares, the denominator of the Conversion
Ratio shall be reduced so that the same shall be equal to the number determined
by multiplying the denominator of the Conversion Ratio in effect immediately
prior to such record date by a fraction of which the numerator shall be the
Current Market Price of the Common Stock on such record date less the amount of
cash so distributed (and not excluded as provided above) applicable to one share
of Common Stock and the denominator shall be such Current Market Price of the
Common Stock, such reduction to become effective immediately prior to the
opening of business on the day following such record date; provided, however,
that in the event the portion of the cash so distributed applicable to one share
of Common Stock is equal to or greater than the Current Market Price of the
Common Stock on such record date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Holder of Notes shall thereafter have the
right to receive upon conversion the amount of cash such Holder would have
received had he converted each Note on such record date. In the event that such
dividend or distribution is not so paid or made, the denominator of the
Conversion Ratio shall again be adjusted to be the denominator of the Conversion
Ratio which would then be in effect if such dividend or distribution had not
been declared.
(e) In case a tender or exchange offer made by the Company or any
Subsidiary of the Company for all or any portion of the Common Stock shall
expire and such tender or exchange offer shall involve the payment by the
Company or such Subsidiary of consideration per share of Common Stock having a
Fair Market Value at the last time (the "Expiration Time") tenders or exchanges
---------------
may be made by holders of Common Stock pursuant to such offer (as it shall have
been amended) that exceeds the Current Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time, the denominator of the
Conversion Ratio shall be reduced
<PAGE>
83
so that such denominator shall equal the number determined by multiplying the
denominator of the Conversion Ratio in effect immediately prior to the
Expiration Time by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged shares)
on the Expiration Time multiplied by the Current Market Price of the Common
Stock on the Trading Day next succeeding the Expiration Time and the denominator
shall be the sum of (x) the Fair Market Value of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased Shares")
----------------
and (y) the product of the number of shares of Common Stock outstanding (less
any Purchased Shares) on the Expiration Time and the Current Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time, such
reduction to become effective immediately prior to the opening of business on
the day following the Expiration Time. In the event that the Company is
obligated to purchase shares pursuant to any such tender or exchange offer, but
the Company is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the denominator of the Conversion
Ratio shall again be adjusted to be the denominator of the Conversion Ratio
which would then be in effect if such tender or exchange offer had not been
made.
(f) No adjustment in the denominator of the Conversion Ratio shall be
required unless such adjustment would require an increase or decrease of at
least 1.0% in the denominator of the Conversion Ratio then in effect; provided,
however, that any adjustments which by reason of this subparagraph (f) are not
required to be made shall be carried forward and taken into account in
determining whether any subsequent adjustment shall be required. Except as
provided in this Section 10.5, the denominator of the Conversion Ratio will not
be adjusted for the issuance of Common Stock or any securities convertible into
or exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
(g) Whenever the conversion price is adjusted as herein provided, the
Company shall promptly file with the Trustee and any conversion agent other than
the Trustee an Officers' Certificate setting forth the denominator of the
Conversion Ratio after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the
denominator of the Conversion Ratio setting forth the adjusted denominator of
the Conversion Ratio and the date on which such adjustment becomes effective and
shall mail or cause to be mailed such notice of such adjustment of the
denominator of the Conversion Ratio to the Holder of each Note at his last
address appearing on the Note register provided for in Section 2.3 of this
Indenture.
(h) In any case in which this Section 10.5 provides that an adjustment
shall become effective immediately after a record date for an event, the Company
may defer until the occurrence of such event (i) issuing to the Holder of any
Note converted after such record date and before the occurrence of such event
the additional shares of Common Stock issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Stock issuable
upon such conversion before giving effect to such adjustment and (ii) paying to
such Holder any amount in cash in lieu of any fraction pursuant to Section 10.3.
<PAGE>
84
(i) The Company may make such reductions in the denominator of the
Conversion Ratio, in addition to those required by subparagraphs (a), (b), (c),
(d) and (e) of this Section 10.5, as the Board of Directors considers to be
advisable to avoid or diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or in any event treated as such for income
tax purposes. To the extent permitted by applicable law, the Company from time
to time may reduce the denominator of the Conversion Ratio by any amount for any
period of time if the period is at least 20 days, the reduction is irrevocable
during such period, and the Board of Directors (or, to the extent permitted by
applicable law, a duly authorized committee thereof) shall have made a
determination that such reduction would be in the best interests of the Company,
which determination shall be conclusive. Whenever the denominator of the
Conversion Ratio is reduced pursuant to the preceding sentence, the Company
shall mail to holders of record of the Notes a notice of the reduction at least
15 days prior to the date the reduced denominator of the Conversion Ratio takes
effect, and such notice shall state the reduced denominator of the Conversion
Ratio and the period it will be in effect.
(j) Notwithstanding any other provision of this Section 10.5, no
adjustment to the denominator of the Conversion Ratio shall reduce the
denominator of the Conversion Ratio below the then par value per share of the
Common Stock, and any such purported adjustment shall instead reduce the
denominator of the Conversion Ratio to such par value. The Company hereby
covenants not to take any action (i) to increase the par value per share of the
Common Stock or (ii) that would or does result in any adjustment in the
denominator of the Conversion Ratio that, if made without giving effect to the
previous sentence, would cause the denominator of the Conversion Ratio to be
less than the then par value per share of the Common Stock, provided, however,
that the covenant in this sentence shall be suspended if within ten days of
determining in good faith that such action would result in such adjustment (but
not later than the Business Day next following the effectiveness of such
adjustment), the Company gives notice of redemption of all outstanding Notes,
and effects the redemption referred to in such notice on the redemption date
referred to therein in compliance with Article III, but the covenant in this
sentence shall be retroactively reinstated if such notice is not given or such
redemption does not occur.
(k) In the event that the provisions of this Article X specifying the
methods by which the Conversion Price or other provisions are adjusted would
require an adjustment that is determined in good faith by the Board of Directors
to be inconsistent with the purpose of the provisions hereof providing for
Conversion Price adjustments or other adjustments (generally, to place Holders
in a position equivalent to the position they were in prior to the occurrence of
the event requiring adjustment to the Conversion Price or other adjustment), the
Board of Directors may make an adjustment (in lieu of that required by such
provisions) that it determines in good faith places the Holders in a position at
least equivalent to the position they were in prior to such event, which
determination shall be described in a Board Resolution. If any action of
transaction would require adjustment to any Conversion Price established
hereunder pursuant to more than one paragraph of this Article X, only the
adjustment that would result in the largest reduction of such Conversion Price
shall be made.
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85
SECTION 10.6 Effect of Reclassification, Consolidation, Merger or Sale. In
---------------------------------------------------------
the case of (a) any reclassification or change of the Common Stock of the
Company, (b) a consolidation, merger or combination involving the Company or (c)
a sale or conveyance to another corporation of the property and assets of the
Company as an entirety or substantially as an entirety, in each case as a result
of which holders of Common Stock shall be entitled to receive stock, other
securities, other property or assets (including cash) with respect to or in
exchange for such Common Stock, the Holders of the Notes then outstanding will
be entitled thereafter to convert such Notes into the kind and amount of shares
of stock, other securities or other property or assets which they would have
owned or been entitled to receive upon such reclassification, change,
consolidation, merger, combination, sale or conveyance had such Notes been
converted into Conversion Shares immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance assuming that a
Holder of Notes would not have exercised any rights of election as to the stock,
other securities or other property or assets receivable in connection therewith.
SECTION 10.7 Taxes on Shares Issued. The issue of stock certificates on
----------------------
conversions of Notes shall be made without charge to the converting Holder of
Notes for any tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than that
of the Holder of any Note converted, and the Company shall not be required to
issue or deliver any such stock certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
SECTION 10.8 Reservation of Shares; Shares to be Fully Paid. The Company
----------------------------------------------
shall, at all times, from and after the date hereof, reserve for issuance and
maintain, free from preemptive rights, out of its authorized but unissued shares
or shares held in treasury, sufficient shares of Common Stock to provide for the
conversion of all outstanding Notes. The Company covenants that all shares of
Common Stock which may be issued upon conversion of Notes will upon issue be
validly issued, fully paid and nonassessable by the Company and free from all
taxes, liens and charges with respect to the issue thereof.
Before taking any action which would cause an adjustment reducing the
denominator of the Conversion Ratio below the then par value, if any, of the
shares of Common Stock issuable upon conversion of the Notes, the Company will
take all corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue shares of such Common
Stock at such adjusted conversion price.
SECTION 10.9 Permanent Reduction of Conversion Ratio upon Certain
----------------------------------------------------
Registration Defaults. In addition to the provisions of this Section 10.5, the
- ---------------------
Conversion Ratio may also be permanently reduced pursuant to and in accordance
with the provisions of the Registration Rights Agreement.
SECTION 10.10 Definition of Closing Price. For purposes of this Article X,
---------------------------
"Closing Price" with respect to any securities on any day means the closing sale
price regular way on such day or, in case no such sale takes place on such day,
the average of the reported closing bid and
<PAGE>
86
asked prices, regular way, in each case on the principal national security
exchange or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the average of the closing bid
and asked prices of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or if not so available, in such manner as
furnished by any National Association of Securities Dealer member firm selected
from time to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors or, to the extent permitted
by applicable law, a duly authorized committee thereof, whose determination
shall be conclusive.
ARTICLE XI
SUBORDINATION
-------------
SECTION 11.1 Notes Subordinated to Senior Indebtedness. (a) The Company
-----------------------------------------
covenants and agrees, and each Holder by accepting a Note covenants and agrees,
that (i) the Indebtedness evidenced by the Notes, including, but not limited to,
the payment of Accreted Value, principal of, premium, if any, interest,
Additional Amounts, if any, and Liquidation Damages, if any, on the Notes, and
any other payment obligation of the Company in respect of the Notes (including
any obligation to repurchase the Notes) is subordinated in right of payment, to
the extent and in the manner provided in this Article, to the prior payment in
full in cash or Cash Equivalents of all Senior Indebtedness of the Company
(whether outstanding on the date hereof or hereafter Incurred) (including,
without limitation, the Company's obligations under the Senior Notes) and (ii)
the subordination is for the benefit of the Holders of Senior Indebtedness. The
Notes shall rank in all respects pari passu with all other Senior Subordinated
Indebtedness of the Company. The Notes shall rank senior in all respects to all
existing and future Indebtedness of the Company that is neither Senior
Indebtedness nor Senior Subordinated Indebtedness and only Indebtedness of the
Company that is Senior Indebtedness shall rank senior to the Notes in accordance
with the provisions set forth herein.
(b) Subject to Section 11.4, if (i) the Company shall default in the
payment of any principal of, premium, if any, or interest, if any, on any Senior
Indebtedness when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration of acceleration or otherwise, or
(ii) any other default shall occur with respect to Senior Indebtedness and the
maturity of such Senior Indebtedness has been accelerated in accordance with its
terms, then, upon written notice of such default to the Company and the Trustee
by the holders of Senior Indebtedness or any trustee or representative therefor,
unless and until, in either case, the default has been cured or waived, or has
ceased to exist, or any such acceleration has been rescinded or such Senior
Indebtedness has been paid in full, no direct or indirect payment (in cash,
property, Notes, by set-off or otherwise) shall be made or agreed to be made on
account of the Accreted Value, principal of, premium, if any, interest,
Additional Amounts, if any, or Liquidated Damages, if any, on any of the Notes,
or in respect of any redemption, retirement, purchase or other acquisition of
any of the Notes nor may any deposit in respect of the Notes be made pursuant to
the provisions of Article VIII hereof; provided, however, such payments and
<PAGE>
87
deposits may be made if the Company and the Trustee receive written notice
approving such payment from the holders of such Senior Indebtedness or any
trustee or representative therefor with respect to which either of the events
set forth in clause (i) or (ii) of this sentence has occurred and is continuing.
(c) If any default (other than a default described in paragraph (b) of
this Section 11.1) shall occur under Designated Senior Indebtedness, pursuant to
which the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods occurs (a "Designated Senior
-----------------
Indebtedness Non-Payment Default"), then, upon the receipt by the Trustee (with
- --------------------------------
a copy to the Company) of written notice thereof (a "Payment Notice") from or on
--------------
behalf of holders of such Designated Senior Indebtedness or any trustee or
representative therefor specifying an election to prohibit such payment and
other action by the Company in accordance with the following provisions of this
paragraph (c), the Company may not make any payment or take any other action
that would be prohibited by paragraph (b) of this 11.1 during the period (the
"Payment Blockage Period") commencing on the date of receipt of such Payment
- ------------------------
Notice and ending on the earlier of (i) the date, if any, on which the holders
of such Designated Senior Indebtedness or any trustee or representative therefor
notify the Trustee and the Company in writing that such Designated Senior
Indebtedness Non-Payment Default is cured or waived or ceases to exist or the
Senior Indebtedness to which such Designated Senior Indebtedness Non-Payment
Default relates is discharged or (ii) the 179th day after the date of receipt of
such Payment Notice. Notwithstanding the provisions described in the immediately
preceding sentence, (i) payments and other distributions made from any
defeasance trust created pursuant to Section 8.1 hereof may be used to make
payments on the Notes if the applicable deposit does not violate Article VIII or
this Article XI, (ii) no Designated Senior Indebtedness Non-Payment Default that
existed or was continuing on the date of delivery to the Trustee of a Payment
Notice shall be, or shall be made, the basis for a subsequent Payment Notice
unless such default shall have been cured or waived for a period of no less than
90 days and (iii) the Company may resume payments on the Notes following such
Payment Blockage Period unless the holders of such Designated Senior
Indebtedness or the trustee or representative of such holders has accelerated
the maturity of such Designated Senior Indebtedness. Any number of Payment
Notices may be given; provided, however, that (i) irrespective of the number of
defaults with respect to Designated Senior Indebtedness during such period, not
more than one Payment Notice shall be given within a period of any 360
consecutive days and (ii) no default that existed upon the date of such Payment
Notice or the commencement of such Payment Blockage Period (whether or not such
event of default is on the same issue of Senior Indebtedness) shall be made the
basis for the commencement of any other Payment Blockage Period.
(d) In the event of (i) a total or partial liquidation or a dissolution of
the Company, (ii) reorganization, bankruptcy, insolvency, receivership of or
similar proceeding relating to the Company or its property or (iii) an
assignment for the benefit of creditors or marshaling of the Company's assets
and liabilities, then the holders of Senior Indebtedness will be entitled to
receive payment in full in cash or Cash Equivalents in respect of Senior
Indebtedness (including interest accruing after, or which would accrue but for,
the commencement of any proceeding at the rate specified in the applicable
Senior Indebtedness, whether or not a claim for such interest would be allowed)
before the Holders will be entitled to receive any payment or distribution
<PAGE>
88
(except that Holders may receive (i) securities of the Company or any other
company provided for by a plan of reorganization or readjustment that are
subordinated at least to the same extent as the Notes are subordinated to Senior
Indebtedness and (ii) payments made from any defeasance trust created pursuant
to Section 8.1 hereof provided that the applicable deposit does not violate
Article VIII or this Article XI), in the event of any payment or distribution of
the assets or securities of the Company. In addition, until the Senior
Indebtedness is paid in full in cash or Cash Equivalents, any payment or
distribution to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture will be made to holders of the Senior
Indebtedness as their interests may appear. In the event of any proceeding
described in the first sentence of this Section 11.1(d), after payment in full
of all sums owing with respect to Senior Indebtedness, the Holders of the Notes,
together with the holders of any obligations of the Company ranking pari passu
with the Notes, shall be entitled to be paid from the remaining assets of the
Company the amounts at the time due and owing on account of unpaid Accreted
Value, principal of, interest, if any, Additional Amounts, if any, and
Liquidated Damages, if any, on the Notes and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, shall be
made on account of any Capital Stock or any obligations of the Company ranking
junior to the Notes and such other obligations.
(e) If, notwithstanding the foregoing, any payment or distribution of any
character, whether in cash, Notes or other property (other than securities of
the Company or any other company provided for by a plan of reorganization or
readjustment that are subordinated at least to the same extent as the Notes are
subordinated to Senior Indebtedness), shall be received by the Trustee or any
Holder in contravention of any of the terms hereof, such payment or distribution
of Notes shall be received in trust for the benefit of and shall be paid over or
delivered and transferred to the holders of the Senior Indebtedness then
outstanding in accordance with the priorities then existing among such holders
for application to the payment of all Senior Indebtedness remaining unpaid, to
the extent necessary to pay all such Senior Indebtedness in full. In the event
of the failure of the Trustee or any Holder to endorse or assign any such
payment, distribution or security, each holder of Senior Indebtedness is hereby
irrevocably authorized to endorse or assign the same. Under the circumstances
described in this Section 11.1, the Company or any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person making any
payment or distribution of cash or other property or securities is authorized or
instructed to make any payment or distribution to which the Holders would
otherwise be entitled (other than securities that are subordinated at least to
the same extent as the Notes are subordinated to Senior Indebtedness and
payments made from any defeasance trust created pursuant to Section 8.1 hereof
provided that the applicable deposit does not violate Article VIII or this
Article XI) directly to the holders of the Senior Indebtedness of the Company
(pro rata to such holders on the basis of the respective amounts of Senior
Indebtedness of the Company held by such holders), or their representatives, or
to any trustee or trustees under any other indenture pursuant to which any such
Senior Indebtedness may have been issued, as their respective interests appear,
to the extent necessary to pay all such Senior Indebtedness in full, in cash or
Cash Equivalents after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Indebtedness.
(f) To the extent that any payment of Senior Indebtedness (whether on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared
<PAGE>
89
to be fraudulent or preferential, set aside or required to be paid to any
receiver, trustee in bankruptcy, liquidating trustee, agent or similar Person
under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar
law, then if such payment is recovered by, or paid over to, such receiver,
trustee in bankruptcy, liquidating trustee, agent or other similar Person, the
Senior Indebtedness or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment had not occurred. To
the extent the obligation to repay such Senior Indebtedness is declared to be
fraudulent, invalid or otherwise set aside under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then the obligation so
declared fraudulent, invalid or otherwise set aside (and all other amounts that
would come due with respect thereto had such obligation not become so affected)
shall be deemed to be reinstated and outstanding as Senior Indebtedness for all
purposes of the Indenture as if such declaration, invalidity or setting aside
had not occurred.
(g) No present or future holder of any Senior Indebtedness shall be
prejudiced in the right to enforce subordination of the Indebtedness evidenced
by the Notes by any act or failure to act on the part of the Company or any
Holder of Notes. Nothing contained herein shall impair, as between the Company
and the Holders of Notes, the obligation of the Company to pay to such Holders
the Accreted Value, principal of, interest, premium, if any, Additional Amounts,
if any, and Liquidated Damages, if any, on such Notes or prevent the Trustee or
the Holder from exercising all rights, powers and remedies otherwise permitted
by applicable law or hereunder upon a Default or Event of Default hereunder, all
subject to the rights of the holders of the Senior Indebtedness to receive cash,
Notes or other property otherwise payable or deliverable to the Holders.
(h) Upon the payment in full of all Senior Indebtedness, the Holders
(together with holders of any Indebtedness that is pari passu with the Notes and
having an equivalent right of subrogation) shall be subrogated to all rights of
any holders of Senior Indebtedness to receive any further payment or
distributions applicable to the Senior Indebtedness until the Indebtedness
evidenced by the Notes shall have been paid in full and such payments or
distributions received by such Holders, by reason of such subrogation, of cash,
Notes or other property which otherwise would be paid or distributed to the
holders of Senior Indebtedness, shall, as between the Company and its creditors
other than the holders of Senior Indebtedness, on the one hand, and such
Holders, on the other hand, be deemed to be a payment by the Company on account
of Senior Indebtedness, and not on account of the Notes.
(i) The provisions of this Section 11.1 shall not impair any rights,
interests, remedies or powers of any secured creditor of the Company in respect
of any security interest the creation of which is not prohibited by the
provisions of this Indenture.
(j) The securing of any obligations of the Company, otherwise ranking pari
passu with the Notes or ranking junior to the Notes, shall not be deemed to
prevent such obligations from constituting, respectively, obligations ranking
pari passu with the Notes or ranking junior to the Notes.
SECTION 11.2 Reliance on Certificate of Liquidating Agent; Further
-----------------------------------------------------
Evidence as to Ownership of Senior Indebtedness. Upon any payment or
- -----------------------------------------------
distribution of assets of the Company,
<PAGE>
90
the Trustee and the Holders shall be entitled to rely upon an order or decree
issued by any court of competent jurisdiction in which such dissolution or
winding up or liquidation or reorganization or arrangement proceedings are
pending or upon a certificate of the bankruptcy trustee, receiver, assignee for
the benefit of creditors or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XI. In the absence of any such
bankruptcy trustee, receiver, assignee or other Person, the Trustee shall be
entitled to rely upon written notice by a Person representing himself to be a
holder of Senior Indebtedness (or a trustee or representative on behalf of such
holder) as evidence that such Person is a holder of Senior Indebtedness (or is
such a trustee or representative). If the Trustee determines, in good faith,
that further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distributions
pursuant to this Article XI, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, as to the extent to which such Person
is entitled to participate in such payment or distribution, and to other facts
pertinent to the rights of such Person under this Article XI, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 11.3 Payment Permitted If No Default. Nothing contained in this
-------------------------------
Article XI or elsewhere in this Indenture, or in any of the Notes, shall prevent
(a) the Company at any time, except during the pendency of any default with
respect to Senior Indebtedness described in Section 11.1(b) or Section 11.1(c)
or of any of the events described in Section 11.1(d), from making payments of
the Accreted Value, principal of, interest, premium, if any, Additional Amounts,
if any, or Liquidated Damages, if any, on the Notes, or (b) the application by
the Trustee or any Paying Agent of any moneys deposited with it hereunder to
make payments of the Accreted Value, principal of, interest, premium, if any,
Additional Amounts, if any, or Liquidated Damages, if any, on the Notes, if, at
the time of such deposit, the Trustee or such Paying Agent, as the case may be,
did not have the written notice provided for in Section 11.4 of any event
prohibiting the making of such deposit, or if, at the time of such deposit
(whether or not in trust) by the Company with the Trustee or Paying Agent (other
than the Company) such payment would not have been prohibited by the provisions
of this Article XI, and the Trustee or any paying agent shall not be affected by
any notice to the contrary received by it on or after such date.
SECTION 11.4 Disputes with Holders of Certain Senior Indebtedness. Any
----------------------------------------------------
failure by the Company to make any payment on or under any Senior Indebtedness,
other than any Senior Indebtedness as to which the provisions of this Section
11.4 shall have been waived by the Company in the instrument or instruments by
which the Company Incurred such Senior Indebtedness, shall not be deemed a
default under Section 11.1 hereof if (i) the Company shall be disputing its
obligation to make such payment or perform such obligation and (ii) either (A)
no final judgment relating to such dispute shall have been issued against the
Company which is in full force and effect and is not subject to further review,
including a judgment that has become final by reason of the expiration of the
time within which a party may seek further appeal or
<PAGE>
91
review, or (B) if a judgment that is subject to further review or appeal has
been issued, the Company shall in good faith be prosecuting an appeal or other
proceeding for review, and a stay of execution shall have been obtained pending
such appeal or review.
SECTION 11.5 Trustee Not Charged with Knowledge of Prohibition. Anything
-------------------------------------------------
in this Article XI or elsewhere in this Indenture contained to the contrary
notwithstanding, the Trustee shall not at any time be charged with knowledge of
the existence of any facts which would prohibit the making of any payment of
moneys to or by the Trustee and shall be entitled to assume conclusively that no
such facts exist and that no event specified in clauses (b) and (c) of Section
11.1 has happened unless and until the Trustee shall have received an Officers'
Certificate to that effect or notice in writing to that effect signed by or on
behalf of the holder or holders of Senior Indebtedness or any trustee or
representative therefor who shall have been certified by the Company or
otherwise established to the reasonable satisfaction of the Trustee to be such
holder or holders or trustee or representative; provided, however, that, if the
Trustee shall not have received the Officers' Certificate or notice provided for
in this Section 11.5 at least three Business Days preceding the date upon which
by the terms hereof any moneys become payable for any purpose, then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such moneys and apply the same to the purpose for
which they were received and shall not be affected by any notice to the contrary
that may be received by it within three Business Days preceding such date. The
Company shall give prompt written notice to the Trustee and to each paying agent
of any facts that would prohibit any payment of moneys to or by the Trustee or
any paying agent, and the Trustee shall not be charged with knowledge of the
curing of any default or the elimination of any other fact or condition
preventing such payment or distribution unless and until the Trustee shall have
received an Officers' Certificate to such effect.
SECTION 11.6 Trustee to Effectuate Subordination. Each Holder of Notes by
-----------------------------------
his acceptance thereof authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
as between such Holder and holders of Senior Indebtedness as provided in this
Article XI and appoints the Trustee its attorney-in-fact for any and all such
purposes.
SECTION 11.7 Rights of Trustee as Holder of Senior Indebtedness. The
--------------------------------------------------
Trustee shall be entitled to all the rights set forth in this Article XI with
respect to any Senior Indebtedness which may at the time be held by it, to the
same extent as any other holder of Senior Indebtedness and nothing in this
Indenture shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article XI shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 7.7.
SECTION 11.8 Article Applicable to Paying Agents. In case at any time any
-----------------------------------
Paying Agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article XI shall in
such case (unless the context shall otherwise require) be construed as extending
to and including such Paying Agent within its meaning as fully for all intents
and purposes as if the Paying Agent were named in this Article XI
<PAGE>
92
in addition to or in place of the Trustee; provided, however, that Sections 11.5
and 11.7 shall not apply to the Company if it acts as Paying Agent.
SECTION 11.9 Subordination Rights Not Impaired by Acts or Omissions of the
-------------------------------------------------------------
Company or Holders of Senior Indebtedness. No right of any present or future
- -----------------------------------------
holders of any Senior Indebtedness to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
which any such holder may have or be otherwise charged with. The holders of
Senior Indebtedness may, at any time or from time to time and in their absolute
direction, change the manner, place or terms of payment, change or extend the
time of payment of, or renew or alter, any such Senior Indebtedness, or amend or
supplement any instrument pursuant to which any such Senior Indebtedness is
issued or by which it may be secured, or release any security therefor, or
exercise or refrain from exercising any other of their rights under such Senior
Indebtedness, including, without limitation, the waiver of default thereunder,
all without notice to or assent from the Holders of the Notes or the Trustee and
without affecting the obligations of the Company, the Trustee or the Holders of
Notes under this Article XI.
SECTION 11.10 Trustee Not Fiduciary for Holders of Senior Indebtedness.
--------------------------------------------------------
The Trustee shall not be deemed to owe any fiduciary duty to the holders of the
Senior Indebtedness, and shall not be liable to any such holders if it shall
mistakenly pay over or distribute money or assets to securityholders or the
Company. With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants or obligations as
are specifically set forth in this Article XI and no implied covenants or
obligations with respect to holders of Senior Indebtedness shall be read into
this Indenture against the Trustee.
SECTION 11.11 Notice of Acceleration. If payment of the Notes is
----------------------
accelerated because of an Event of Default, the Company or the Trustee shall
promptly notify the holders of the Designated Senior Indebtedness or the trustee
or representative of such holders of the acceleration. The Company may not make
any payment on the Notes that would be prohibited by paragraph (b) of Section
11.1 until five Business Days after such holders, trustee or representative of
the Designated Senior Indebtedness receives notice of such acceleration and,
thereafter, may make such payment on the Notes only if the subordination
provisions hereof otherwise permit payment at such time.
SECTION 11.12 Relative Rights. This Article XI defines the relative rights
---------------
of Holders of Notes and holders of Senior Indebtedness. Nothing in this
Indenture shall (i) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay Accreted
Value, principal of and interest on the Notes in accordance with their terms,
(ii) affect the relative rights of Holders of Notes and creditors of the Company
other than their rights in relation to holders of Senior Indebtedness or (iii)
prevent the Trustee or any Holder from exercising its available remedies upon a
Default or Event of Default, subject to the rights of holders and owners of
Senior Indebtedness to receive distributions and payments otherwise payable to
Holders of Notes. If the Company fails because of this Article XI to pay
Accreted Value, principal of, interest, premium, if any, Additional Amounts, if
any, or
<PAGE>
Liquidated Damages, if any, on a Note on the due date, the failure is still a
Default or Event of Default.
ARTICLE XII
MISCELLANEOUS
-------------
SECTION 12.1 TIA Controls. If any provision of this Indenture limits,
------------
qualifies, or conflicts with the duties imposed by operation of Section 3.18(c)
of the TIA, the imposed duties shall control.
SECTION 12.2 Notices. Any notices or other communications required or
-------
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery, by telecopier or first-class mail, postage prepaid, addressed
as follows:
if to the Company:
Cybernet Internet Services International, Inc.
Stefan-George-Ring 19-23
D-81929 Munchen
Facsimile No: +49-89-993-15199
Attention: Robert Eckert
with a copy to:
Powell, Goldstein, Frazer & Murphy LLP
1001 Pennsylvania Avenue, N.W.
Washington D.C. 20004
Facsimile No: +202-624-7222
Attention: Joseph M. Berl, Esq.
if to the Trustee:
The Bank of New York, as Trustee, Registrar or Paying Agent
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Facsimile: (212) 815-5915
Each of the Company and the Trustee by written notice to each other such
Person may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company and the Trustee, must be in
writing and shall be deemed to have been given or made as of the date so
delivered if personally delivered; when receipt is acknowledged, if telecopied;
and upon actual receipt if sent by first class mail, postage prepaid
<PAGE>
94
(except that a notice of change of address and a Notice to the Trustee shall not
be deemed to have been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to such
Person by first-class mail or other equivalent means at such Person's address as
it appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
Notices regarding the Notes in global form will be published in a leading
newspaper having a general circulation in New York (which is expected to be The
Wall Street Journal) and in Frankfurt (which is expected to be the Frankfurter
Allgemeine Zeitung) (and, if and so long as the Notes are listed, admitted or
eligible for trading on a stock exchange or trading market and the rules of such
stock exchange or trading market shall so require, a newspaper having a general
circulation in the locations which the stock exchange or trading market
requires). Notices regarding the Definitive Notes will be mailed to Holders by
first-class mail at their respective addresses as they appear on the
registration books of the Registrar and, if and so long as the Notes are listed,
admitted or eligible for trading on a stock exchange or trading market and the
rules of such stock exchange or trading market shall so require, such notices
will be published in a newspaper having a general circulation in the locations
which such stock exchange or trading market requires. Notices given by
publication will be deemed given on the first date on which publication is made
and notices given by first-class mail, postage prepaid, will be deemed given
five calendar days after mailing.
SECTION 12.3 Communications by Holders with Other Holders. Holders may
--------------------------------------------
communicate pursuant to Section 312(b) of the TIA with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other person shall have the protection of Section
312(c) of the TIA.
SECTION 12.4 Certificate and Opinion as to Conditions Precedent. Upon any
--------------------------------------------------
request or application by the Company to the Trustee or an Agent to take any
action under this Indenture, the Company shall furnish to the Trustee at the
request of the Trustee:
(1) an Officers' Certificate, in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.5), stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied or complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee or such Agent (which shall include the
statements set forth in Section 12.5) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been satisfied or
complied with.
<PAGE>
95
SECTION 12.5 Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, such Person has
made such examination or investigation as is necessary to enable such
Person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with;
provided, however, that with respect to matters of fact an Opinion of Counsel
may rely on an Officers' Certificate or certificates of public officials.
SECTION 12.6 Rules by Trustee, Paying Agent, Registrar. The Trustee,
-----------------------------------------
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 12.7 Legal Holidays. If a payment date is not a Business Day,
--------------
payment may be made on the next succeeding day that is a Business Day, and no
interest shall accrue for the intervening period.
SECTION 12.8 Governing Law. This Indenture and the Notes shall be
-------------
governed by, and construed and interpreted in accordance with, the laws of the
State of New York.
SECTION 12.9 Submission to Jurisdiction; Appointment of Agent for Service;
-------------------------------------------------------------
Waiver. To the fullest extent permitted by applicable law, the Company
- ------
irrevocably submits to the non-exclusive jurisdiction of any federal or state
court in the Borough of Manhattan in The City of New York, County and State of
New York, United States of America, in any suit or proceeding based on or
arising under this Indenture and the Notes, and irrevocably agrees that all
claims in respect of such suit or proceeding may be determined in any such
court. The Company, to the fullest extent permitted by applicable law,
irrevocably and fully waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding and hereby irrevocably designates and
appoints Corporation Services Company (the "Authorized Agent"), for a period of
----------------
ten years from the date hereof or until such time as no Notes are outstanding,
as its authorized agent upon whom process may be served in any such suit or
proceeding. The Company represents that it has notified the Authorized Agent of
such designation and appointment and that the Authorized Agent has accepted the
same in writing. The Company hereby irrevocably authorizes and directs its
Authorized Agent to accept such service. The Company further agrees that
service of process upon its Authorized Agent and written notice of said service
to the
<PAGE>
96
Company mailed by first class mail or delivered to its Authorized Agent shall be
deemed in every respect effective service of process upon the Company in any
such suit or proceeding. Nothing herein shall affect the right of any person to
serve process in any other manner permitted by law. The Company agrees that a
final action in any such suit or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other lawful
manner. Notwithstanding the foregoing, any action against the Company arising
out of or based on this Indenture, the Notes or the transactions contemplated
hereby may also be instituted in any competent court in Germany, and the Company
expressly accepts the jurisdiction of any such court in any such action.
The Company hereby irrevocably waives, to the extent permitted by law, any
immunity to jurisdiction to which it may otherwise be entitled (including,
without limitation, immunity to pre-judgment attachment, post-judgment
attachment and execution) in any legal suit, action or proceeding against it
arising out of or based on this Indenture, the Notes or the transactions
contemplated hereby.
To the extent permitted by applicable law, the Company and the Trustee each
waive any right to have a jury participate in resolving any dispute, whether
sounding in contract, tort, or otherwise arising out of, connected with, related
to or incidental to the relationship established between them in connection with
this agreement. Instead, any disputes resolved in court will be resolved in a
bench trial without a jury.
The provisions of this Section 12.9 are intended to be effective upon the
execution of this Indenture and the Notes without any further action by the
Company or the Trustee and the introduction of a true copy of this Indenture
into evidence shall be conclusive and final evidence as to such matters.
SECTION 12.10 No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Indenture may not be used to interpret another indenture, loan or debt agreement
of any of the Company or any of its Subsidiaries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 12.11 No Personal Liability of Directors, Officers, Employees,
--------------------------------------------------------
Stockholders or Incorporators. No director, officer, employee, incorporator or
- -----------------------------
stockholder of the Company shall have any liability for any obligations of the
Company under the Notes or this Indenture or for any claim based on, in respect
of, or by reason of such obligations or their creation. Each Holder of the Notes
by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes.
SECTION 12.12 Currency Indemnity. U.S. dollars are the sole currency of
------------------
account and payment for all sums payable by the Company under or in connection
with the Notes, including damages. Any amount received or recovered in a
currency other than U.S. dollars (whether as a result of, or the enforcement of,
a judgment or order of a court of any jurisdiction, in the winding-up or
dissolution of the Company or otherwise) by any Holder of a Note, the Trustee or
the Agents in respect of any sum expressed to be due to it from the Company
shall only constitute a discharge to the Company to the extent of the U.S.
dollar amount which the recipient
<PAGE>
97
is able to purchase with the amount so received or recovered in that other
currency on the date of that receipt or recovery (or, if it is not practicable
to make that purchase on that date, on the first date on which it is practicable
to do so). If that U.S. dollar amount is less than the U.S. dollar amount
expressed to be due to the recipient, the Company shall indemnify it against any
loss sustained by it as a result. If the dollar amount is greater than the
dollar amount expressed to be due to the recipient under this Agreement, the
Company shall be entitled to the amount of such excess. In any event, the
Company shall indemnify the recipient against the cost of making any such
purchase. For the purposes of this subsection, it will be sufficient for the
Trustee or any Holder of a Note to certify in a satisfactory manner (indicating
the sources of information used) that it would have suffered a loss had an
actual purchase of U.S. dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of dollars
on such date had not been practicable, on the first date on which it would have
been practicable, it being required that the need for a change of date be
certified in the manner mentioned above). These indemnities constitute a
separate and independent obligation from the Company's other obligations, shall
give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by the Trustee or any Holder of a Note
and shall continue in full force and effect despite any other judgment, order,
claim or proof for a liquidated amount in respect of any sum due under any Note.
SECTION 12.13 Successors. All agreements of the Company in this Indenture
----------
and the Notes shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 12.14 Counterparty Originals All parties hereto may sign any
------------------------------------------------------
number of copies of this Indenture. Each signed copy or counterpart shall be an
- ----------------------------------
original, but all of them together shall represent one and the same agreement.
SECTION 12.15 Severability. In case any one or more of the provisions in
------------
this Indenture or in the Notes shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
SECTION 12.16 Table of Contents, Headings, etc.. The Table of Contents,
---------------------------------
Cross-Reference Table and Headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part of this Indenture and shall in no way modify or restrict any
of the terms or provisions hereof.
<PAGE>
EXHIBIT 10.28
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, as of the date first written above.
CYBERNET INTERNET SERVICES
INTERNATIONAL, INC.
By: /s/ Andreas Eder
------------------------------
Name: Andreas Eder
Title: President and Chief Executive
Officer
By: /s/ Robert Eckert
------------------------------
Name: Robert Eckert
Title: Chief Financial Officer and
Treasurer
THE BANK OF NEW YORK, as Trustee,
Registrar and Paying Agent
By: /s/ Mike Hellmuth
------------------------------
Name: Mike Hellmuth
Title: Assistant Vice President
<PAGE>
EXHIBIT A
TO THE INDENTURE
[FORM OF FACE OF GLOBAL NOTE]
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S, (2) AGREES THAT
IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF
TIME AS PERMITTED BY RULE 144 (k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE
LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT THE PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
(3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHICH THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT
THE ISSUER AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E), TO REQUIRE THE DELIVERY OF ANY
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
A-1
<PAGE>
INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATION OR TRANSFER IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
---
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF DTC AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.6 OF THE INDENTURE DATED AUGUST 26, 1999 PURSUANT TO WHICH THEY WERE
ISSUED.
A-2
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
13.0% Convertible Senior Subordinated Discount Note due 2009
CUSIP No.:
No. $
CYBERNET INTERNET SERVICES INTERNATIONAL, INC., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
promises to pay Cede & Co. or registered assigns upon surrender hereof the
principal sum indicated on Schedule A hereof, on August 15, 2009.
Interest Payment Dates: February 15 and August 15, commencing February 15,
2005
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.
CYBERNET INTERNET SERVICES
INTERNATIONAL, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
Certificate of Authentication:
This is one of the Notes referred to
in the within-mentioned Indenture:
THE BANK OF NEW YORK, as Trustee,
By:_____________________________
Name:
Title:
Dated: August 26, 1999
A-4
<PAGE>
[FORM OF REVERSE]
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
13.0% Convertible Senior Subordinated Discount Note due 2009
1. Interest; Accreted Value. CYBERNET INTERNET SERVICES INTERNATIONAL,
------------------------
INC., a Delaware corporation (the "Company"), promises to pay interest on the
principal amount of this Note at the rate and in the manner specified below. The
Notes will accrete at a rate per annum of 13.0% on the principal amount then
outstanding, semi-annually on each February 15 and August 15, until August 15,
2004. There will be no accrual of cash interest on the Notes until August 15,
2004 and no payment of cash interest until February 15, 2005. From and after
August 15, 2004, interest on the Notes will accrue at 13.0% per annum on the
principal amount then outstanding, and be payable to the Holder hereof semi-
annually in arrears on each February 15 and August 15, or if any such day is not
a Business Day on the next succeeding Business Day. Notwithstanding any exchange
of this Note for a Definitive Note during the period starting on a Record Date
relating to such Definitive Note and ending on the immediately succeeding
Interest Payment Date, the interest due on such Interest Payment Date shall be
payable to the Person in whose name this Global Note is registered at the close
of business on the Record Date for such interest. From and after August 15,
2004, interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from August 15, 2004.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods), on
any Additional Amounts, and on any Liquidated Damages, from time to time on
demand at the rate borne by the Notes plus 1.5% per annum to the extent lawful.
Any interest paid on this Note shall be increased to the extent necessary to pay
Additional Amounts as set forth herein.
2. Liquidated Damages; Adjustment of Conversion Ratio. Pursuant to the
--------------------------------------------------
Registration Rights Agreement, the Company has agreed to file a shelf
registration statement (the "Resale Shelf Registration Statement") with the
Commission with respect to resales of the Notes (which Resale Shelf Registration
Statement shall also register the sale of the underlying Common Stock issuable
upon conversion thereof) and use its best efforts to (i) cause such Resale Shelf
Registration Statement to be declared effective by the Commission and (ii) keep
such Resale Shelf Registration Statement continuously effective, supplemented
and amended to ensure that it is available for resales of Notes by holders
entitled to this benefit and to ensure that such Resale Shelf Registration
Statement conforms and continues to conform with the requirements of the
Registration Rights Agreement, the Securities Act and the policies, rules and
regulations of the Commission, as announced from time to time, until, subject to
certain exceptions specified in the Registration Rights Agreement, such time as
no Notes remain as Transfer Restricted Securities (as defined below). The
Holders shall be entitled to receive payment of additional interest in the form
of Liquidated Damages in the event such Resale Shelf Registration Statement is
not declared effective and in certain other events, subject, in each case, to
certain conditions, all
A-5
<PAGE>
pursuant to and in accordance with the terms of the Registration Rights
Agreement. Liquidated Damages which may be payable pursuant to the Registration
Rights Agreement shall be payable in the same manner as set forth herein with
respect to the stated interest. The provisions of the Registration Rights
Agreement relating to such Liquidated Damages are incorporated herein by
reference and made a part hereof as if set forth herein in full. The Company
shall provide written notice to the Trustee of the accrual and amount of
Liquidated Damages, if any, not less than ten (10) Business Days prior to each
Interest Payment Date. Absent such notice, the Trustee shall be conclusively
entitled to presume that no Liquidated Damages have accrued and are owing. For
purposes of the foregoing "Transfer Restricted Securities" means each Note and
the Common Stock issuable upon conversion thereof until (i) the date on which
such Note (and the Common Stock issuable upon conversion thereof) has been
effectively registered under the Securities Act and disposed of in accordance
with the Resale Shelf Registration Statement, (ii) the date on which such Note
(and the Common Stock issuable upon conversion thereof) is distributed to the
public pursuant to Rule 144 under the Securities Act (or any similar provision
then in effect) or is saleable pursuant to Rule 144(k) under the Act (or any
similar provision then in effect) or (iii) the date on which such Note (and the
Common Stock issuable upon the conversion thereof) ceases to be outstanding.
The Company has also agreed with the Initial Purchaser, for the benefit of
the Holders of the Notes, that it will use its best efforts to cause to become
effective no later than one year after the Closing Date, a shelf registration
statement with respect to the issuance of the Conversion Shares upon conversion
of the Notes, or if the Company determines that, notwithstanding its best
efforts, the Commission will not declare such registration statement effective,
a shelf registration statement with respect to the resale of the Conversion
Shares (either of such shelf registration statements, a "Conversion Shelf
Registration Statement"). The Company is required to use its best efforts, at
its cost, to maintain the effectiveness of the Conversion Shelf Registration
Statement until the earlier of (i) such time as all Notes have been converted or
redeemed and (ii) August 15, 2009, or in the case of a Conversion Shelf
Registration Statement with respect to the resale of Conversion Shares, until
the earlier of (i) the date on which all Notes can be resold by holders thereof
without restriction and without registration under the Securities Act and (ii)
such time as all the Conversion Shares covered by such registration statement
have been resold pursuant to such registration statement. Holders of Notes will
not be named as selling security holders in a Conversion Shelf Registration
Statement covering the issuance of the Conversion Shares, but would be named in
a Conversion Shelf Registration Statement covering resale of the Conversion
Shares, if applicable. If such a Conversion Shelf Registration Statement is not
declared effective on or prior to the date that is one year after the Closing
Date, the denominator of the Conversion Ratio will be decreased by 2.04%.
Holders of Notes will be able to convert their Notes only if a registration
statement relating to the Conversion Shares underlying the Notes is then
effective and available, or the conversion of the Notes is exempt from the
registration requirements of the Securities Act, and such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the states or other jurisdictions in which the various holders of the
Notes reside. The provisions of the Registration Rights Agreement relating to
the Conversion Shelf Registration Statement and the decrease of the Conversion
Ratio are incorporated herein by reference and made a part hereof as if set
forth herein in full.
A-6
<PAGE>
3. Additional Amounts. All payments made by the Company on the Notes will
------------------
be made without withholding or deduction for, or on account of, any present or
future taxes, duties, assessments or governmental charges of whatever nature
(collectively, "Taxes") imposed or levied by or on behalf of Germany or any
jurisdiction in which the Company or any Successor Company is organized or is
otherwise resident for tax purposes or any political subdivision thereof or any
authority having power to tax therein or any jurisdiction from or through which
payment is made (each a "Relevant Taxing Jurisdiction"), unless the withholding
or deduction of such Taxes is then required by law. If any deduction or
withholding for, or on account of, any Taxes of any Relevant Taxing
Jurisdiction, shall at any time be required on any payments made by the Company
with respect to the Notes, including payments of Accreted Value, principal,
redemption price, interest or premium, the Company will pay such additional
amounts (the "Additional Amounts") as may be necessary in order that the net
amounts received in respect of such payments by the Holders of the Notes or the
Trustee, as the case may be, after such withholding or deduction, equal the
respective amounts which would have been received in respect of such payments in
the absence of such withholding or deduction; except that no such Additional
Amounts will be payable with respect to:
(a) any payments on a Note held by or on behalf of a Holder or
beneficial owner who is liable for such Taxes in respect of such Note by
reason of the Holder or beneficial owner having some connection with the
Relevant Taxing Jurisdiction (including being a citizen or resident or
national of, or carrying on a business or maintaining a permanent
establishment in, or being physically present in, the Relevant Taxing
Jurisdiction) other than by the mere holding of such Note or enforcement of
rights thereunder or the receipt of payments in respect thereof;
(b) any Taxes that are imposed or withheld as a result of a change
in law after the Issue Date where such withholding or imposition is by
reason of the failure of the Holder or beneficial owner of the Note to
comply with any request by the Company to provide information concerning
the nationality, residence or identity of such Holder or beneficial owner
or to make any declaration or similar claim or satisfy any information or
reporting requirement, which is required or imposed by a statute, treaty,
regulation or administrative practice of the Relevant Taxing Jurisdiction
as a precondition to exemption from all or part of such Taxes;
(c) except in the case of the winding up of the Company, any Note
presented for payment (where presentation is required) in the Relevant
Taxing Jurisdiction; or
(d) any Note presented for payment (where presentation is required)
more than 30 days after the relevant payment is first made available for
payment to the Holder.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Note been the Holder of the Note, he would not have been entitled
to payment of Additional Amounts by reason of clauses (a) to (d) inclusive
above.
A-7
<PAGE>
4. Method of Payment. The Company shall pay interest on the Notes
-----------------
(except defaulted interest) to the Person in whose name this Note is registered
at the close of business on the Record Date for such interest. Holders must
surrender Notes to a Paying Agent to collect principal payments. The Company
shall pay principal and interest in dollars or in such other coin or currency of
the United States of America that at the time of payment which is legal tender
for payment of public and private debts. Immediately available funds for the
payment of Accreted Value, the principal of (and premium, if any), interest,
Additional Amounts, if any, and Liquidated Damages, if any, on this Note due on
any Interest Payment Date, Maturity Date, Redemption Date or other repurchase
date will be made available to the Paying Agent to permit the Paying Agent to
pay such funds to the Holders on such respective dates.
5. Paying Agent and Registrar. Initially, The Bank of New York will act
--------------------------
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act in any such capacity.
6. Indenture. The Company issued the Notes under an Indenture, dated as
---------
of August 26, 1999 (the "Indenture"), between the Company and The Bank of New
York (the "Trustee"). This Note is one of a duly authorized issue of [Original]
[Additional] Notes (as defined in the Indenture) of the Company designated as
its 13.0% Convertible Senior Subordinated Discount Notes due 2009 (together with
the [Original] [Additional] Notes, the "Notes"). The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"), as in effect on the date of the Indenture until such time as the
Indenture is qualified under the TIA, and thereafter as in effect on the date on
which the Indenture is qualified under the TIA. Notwithstanding anything to the
contrary herein, the Notes are subject to all such terms, and Holders of Notes
are referred to the Indenture and the TIA for a statement of them. The Notes are
not secured by any of the assets of the Company. The Notes are limited in
aggregate principal amount to $100,000,000 subject to the terms of the
Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time.
7. Ranking and Subordination. The Notes will be general unsecured
-------------------------
obligations of the Company and will rank in all respects pari passu with all
----------
other senior subordinated Indebtedness of the Company. The Notes will rank
senior to all existing and future Indebtedness of the Company that is neither
Senior Indebtedness nor Senior Subordinated Indebtedness and only Indebtedness
of the Company that is Senior Indebtedness shall rank senior to the Notes in
accordance with the Indenture. The Notes are subordinated to Senior
Indebtedness (as defined in the Indenture). To the extent provided in the
Indenture, Senior Indebtedness must be paid before the Notes may be paid by the
Company. The Company agrees, and each Holder by accepting a Note agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give effect to such provisions, and each Holder appoints the Trustee his
attorney-in-fact for any and all such purposes.
A-8
<PAGE>
8. Optional Redemption. The Notes will be redeemable, at the Company's
-------------------
option, in whole or in part, on and after August 15, 2004 upon not less than 30
nor more than 60 days' prior notice published in a leading newspaper having a
general circulation in New York (which is expected to be The Wall Street
Journal) and in Frankfurt (which is expected to be the Frankfurter Allgemeine
Zeitung) (and if, and so long as the Notes are listed, admitted or eligible for
trading on a stock exchange or trading market and the rules of such stock
exchange or trading market shall so require, in a newspaper having a general
circulation in the locations which the stock exchange or trading market shall
require) at the redemption prices (expressed as a percentage of principal
amount) set forth below (each, a "Redemption Price"), plus accrued and unpaid
interest, Additional Amounts, if any, and Liquidated Damages, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on August 15 of each of the years indicated below:
Redemption
Year Price
---- ----------
2004.............................................. 106.500%
2005.............................................. 104.333%
2006.............................................. 102.167%
2007 and thereafter............................... 100.000%
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal securities exchange, if any, on which the Notes are listed or, if
such Notes are not so listed or such exchange prescribes no method of selection,
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate, although no Note of $1,000 in
original principal amount or less shall be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued and
delivered to DTC upon cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on the Notes or portions thereof
called for redemption.
9. Special Tax Redemption. The Notes may be redeemed, at the option of
----------------------
the Company in whole but not in part, at any time upon giving not less than 30
nor more than 60 days' notice to the Holders (which notice shall be
irrevocable), at a redemption price (each, a "Redemption Price") equal to the
principal amount thereof, together with accrued and unpaid interest and
Liquidated Damages, if any, to the date fixed by the Company for redemption (a
"Tax Redemption Date"), and, all Additional Amounts, if any, and Liquidated
Damages, if any, then due and which will become due on the Tax Redemption Date
as a result of the redemption or otherwise, if the Company determines that, as a
result of (i) any change in, or amendment to, the laws or treaties (or any
regulations or rulings promulgated thereunder) of The Federal Republic of
Germany (or any political subdivision or taxing authority thereof) affecting
taxation which becomes effective on or after the Issue Date, or (ii) any change
in or new or different position regarding the application, administration or
interpretation of such laws, treaties, regulations or
A-9
<PAGE>
rulings (including a holding, judgment or order by a court of competent
jurisdiction), which change, amendment, application or interpretation becomes
effective on or after the Issue Date, the Company is, or on the next Interest
Payment Date would be, required to pay Additional Amounts, and the Company
determines that such payment obligation cannot be avoided by the Company taking
reasonable measures. Notwithstanding the foregoing, no such notice of redemption
shall be given earlier than 90 days prior to the earliest date on which the
Company would be obligated to make such payment or withholding if a payment in
respect of the Notes were then due. Prior to the publication or, where relevant,
mailing of any notice of redemption of the Notes pursuant to the foregoing, the
Company will deliver to the Trustee an opinion of an independent tax counsel of
recognized international standing to the effect that the circumstances referred
to above exist. The Trustee shall accept such opinion as sufficient evidence of
the satisfaction of the conditions precedent described above, in which event it
shall be conclusive and binding on the Holders.
10. Notice of Redemption. Notice of redemption will be given at least 30
--------------------
days but not more than 60 days before the redemption date by publishing in a
leading newspaper having a general circulation in New York (which is expected to
be The Wall Street Journal) and in Frankfurt (which is expected to be the
Frankfurter Allgemeine Zeitung) (and, if and so long as the Notes are listed,
admitted or eligible for trading on a stock exchange or trading market and the
rules of such stock exchange or trading market shall so require, a newspaper
having a general circulation in the location which such stock exchange or
trading market shall require). Notes in denominations of $1,000 principal
amount at maturity may be redeemed only in whole. The Trustee may select for
redemption portions (equal to $1,000 or any integral multiple thereof) of the
principal amount at maturity of Notes that have denominations larger than
$1,000.
Except as set forth in the Indenture, from and after any redemption date,
if monies for the redemption of the Notes called for redemption shall have been
deposited with the Paying Agent for redemption on such redemption date, then,
unless the Company defaults in the payment of such Redemption Price, the Notes
called for redemption will cease to bear interest (or increase in Accreted
Value, as the case may be), Additional Amounts, if any, or Liquidated Damages,
if any, and the only right of the Holders of such Notes will be to receive
payment of the Redemption Price.
11. Conversion. Subject to the provisions of the Indenture, unless
----------
previously redeemed, the Notes are convertible (in denominations of $1,000
principal amount at maturity or integral multiples thereof), at the option of
the holder thereof, into Capital Stock of the Company at any time after 365 days
following the Issue Date and prior to the maturity date. The number of shares
of Capital Stock of the Company ("Conversion Shares") issuable upon conversion
of the Notes is equal to the Accreted Value of the Notes being converted (on the
date of conversion) divided by $25.00, subject to adjustment as provided in the
Indenture (the "Conversion Ratio"). Except as described below, no adjustment
will be made on conversion of any Notes for interest accrued thereon or for
dividends paid on outstanding Capital Stock of the Company. If Notes not called
for redemption are converted (including pursuant to the mandatory conversion
feature described below) after a record date for the payment of interest and
prior to the next succeeding interest payment date, such Notes must be
accompanied by funds equal to the interest payable on such
A-10
<PAGE>
succeeding interest payment date on the principal amount so converted. The
Company is not required to issue fractional shares upon conversion of Notes
(including pursuant to the mandatory conversion feature described below) and, in
lieu thereof, will pay a cash adjustment based upon the Closing Price on the
Neuer Markt of the Common Stock on the last Trading Day prior to the day of
conversion. In the case of Notes called for redemption, conversion rights will
expire at the close of business on the Trading Day next preceding the date fixed
for redemption, unless the Company defaults in payment of the redemption price.
In addition, if the closing price on the Neuer Markt of the Common Stock
during any period described below has exceeded the price for such period
referred to below for at least 30 consecutive Trading Days ("Market Criteria,"
with the 30-day period being referred to as the "Market Criteria Period"), and
the Conversion Shelf Registration Statement described in paragraph 2 hereof is
effective and available, all of the Notes will be automatically converted into
that number of Conversion Shares derived by application of the Conversion Ratio;
provided, however, that if the Market Criteria is satisfied during the first
year after the Closing Date, the conversion will not occur until the one-year
anniversary of the Closing Date and will occur only if the closing price on the
Neuer Markt of the Common Stock is at least (Euro)32.00 on such date:
Closing
-------
12 Months Beginning Price
------------------- -----
August 15, 1999 (Euro)32.00
August 15, 2000 (Euro)38.46
August 15, 2001 (Euro)44.92
August 15, 2002 (Euro)51.37
August 15, 2003 (Euro)57.83
The denominator of the Conversion Ratio is subject to adjustment as provided in
Section 10.5 of the Indenture.
12. Change of Control Offer. Upon the occurrence of a Change of Control,
-----------------------
the Company will be required to make an offer to purchase all or any part (equal
to $1,000 in principal amount at maturity and integral multiples thereof) of the
Notes on the Change of Control Payment Date at a purchase price in cash equal to
(i) if such purchase is prior to August 15, 2004, 101% of the Accreted Value
thereof or (ii) if such purchase is on or after August 15, 2004, 101% of the
aggregate principal amount thereof, in either case, plus accrued and unpaid
interest, thereon to the date of repurchase plus Additional Amounts, if any, and
Liquidated Damages, if any, to the date of repurchase. Holders of Notes that are
subject to an offer to purchase will receive a Change of Control Offer from the
Company prior to any related Change of Control Payment Date and may elect to
have such Notes purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below.
13. Limitation on Disposition of Assets. When the aggregate amount of
-----------------------------------
Excess Proceeds from Asset Sales exceeds (Euro)5.0 million, the Company will be
obligated, within 15 Business Days thereafter, to make an offer to all Holders
and to the extent required by the terms thereof, to all
A-11
<PAGE>
holders of Pari Passu Notes to purchase on a pro rata basis the maximum
principal amount of Notes (or Accreted Value, as the case may be) and the
maximum principal amount (or accreted value, as the case may be) of any such
Pari Passu Notes to which the Asset Sale Offer applies, that is an integral
multiple of $1,000 (or (Euro)1,000, as the case may be) that may be purchased
out of the Excess Proceeds at an offer price in cash in an amount equal to 100%
of the outstanding principal amount or accreted value or Accreted Value, as the
case may be, thereof, plus accrued and unpaid interest thereon plus Additional
Amounts and Liquidated Damages, if any, to the date fixed for the closing of
such offer. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, subject to applicable law, the
Trustee shall select the Notes to be redeemed in accordance with the Indenture;
provided, however, that no Notes of $1,000 or less shall be purchased in part.
Holders of Notes that are the subject of an offer to purchase will receive an
Asset Sale Offer from the Company prior to any related purchase date and may
elect to have such Notes purchased by completing the form entitled "Option of
Holders to Elect Purchase" appearing below.
14. Denominations; Form. The Global Notes are in registered global form,
-------------------
without coupons, in denominations of $1,000 and integral multiples of $1,000.
15. Persons Deemed Owners. The registered Holder of this Note shall be
---------------------
treated as the owner of it for all purposes, subject to the terms of the
Indenture.
16. Unclaimed Funds. If funds for the payment of principal, interest,
---------------
Additional Amounts or Liquidated Damages remain unclaimed for two years, the
Trustee and the Paying Agents will repay the funds to the Company at its written
request. After that, all liability of the Trustee and such Paying Agents with
respect to such funds shall cease.
17. Legal Defeasance and Covenant Defeasance. The Company may be
----------------------------------------
discharged from its obligations under the Indenture and the Notes except for
certain provisions thereof ("Legal Defeasance"), and may be discharged from its
obligations to comply with certain covenants contained in the Indenture
("Covenant Defeasance"), in each case upon satisfaction of certain conditions
specified in the Indenture.
18. Amendment; Supplement; Waiver. Subject to certain exceptions
-----------------------------
specified in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of at least a majority in
principal amount of the Notes then outstanding, and any existing Default or
Event of Default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the Notes then outstanding.
19. Restrictive Covenants. The Indenture imposes certain covenants that,
---------------------
among other things, limit the ability of the Company and its Restricted
Subsidiaries to, incur additional Indebtedness, pay dividends or make other
distributions or investments, repurchase Equity Interests or make certain other
Restricted Payments, enter into certain consolidations or mergers or enter into
certain transactions with Affiliates and consummate certain mergers and
consolidations or sales of all or substantially all assets. The limitations are
subject to a number
A-12
<PAGE>
of important qualifications and exceptions. The Company must annually report to
the Trustee on compliance with such limitations.
20. Successors. When a successor assumes all the obligations of its
----------
predecessor under the Notes and the Indenture in accordance with the terms of
the Indenture, the predecessor will be released from those obligations.
21. Defaults and Remedies. If an Event of Default (other than an Event of
---------------------
Default specified in subsections 6.1(h) or (i) of the Indenture) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount at
maturity of the then outstanding Notes may declare all the Notes to be due and
payable immediately in the manner and with the effect provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount at maturity of the Notes then outstanding to
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Notes notice of any continuing Default or Event of
Default (except a Default in payment of Accreted Value, principal, premium,
interest, Additional Amounts, if any, and Liquidated Damages, if any, including
an accelerated payment) if it determines that withholding notice is in their
interest.
22. Trustee Dealings with Company. The Trustee under the Indenture, in
-----------------------------
its individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
23. No Recourse Against Others. No stockholder, director, officer,
--------------------------
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of the Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
24. Authentication. This Note shall not be valid until the Trustee or
--------------
authenticating agent signs the certificate of authentication on this Note.
25. Abbreviations and Defined Terms. Customary abbreviations may be used
-------------------------------
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act). Unless otherwise defined herein, terms
defined in the Indenture are used herein as defined therein.
26. CUSIP Numbers. Pursuant to a recommendation promulgated by the
-------------
Committee on Uniform Security Identification Procedures, the Company will cause
CUSIP numbers to be printed on the Notes immediately prior to the qualification
of the Indenture under the TIA as a
A-13
<PAGE>
convenience to the Holders of the Notes. No representation is made as to the
accuracy of such numbers as printed on the Notes and reliance may be placed only
on the other identification numbers printed hereon.
27. Governing Law. The Indenture and the Notes shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
A-14
<PAGE>
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $ .
The following decreases/increases in the principal amount at maturity of this
Note have been made:
<TABLE>
<CAPTION>
Total Principal
Amount at Notation
Decrease in Increase in Maturity Made by
Date of Principal Principal Following such or on
Decrease/ Amount at Amount at Decrease/ Behalf of
Increase Maturity Maturity Increase Trustee
- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
___________ ___________ ____________ ____________ ___________
</TABLE>
A-15
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.15 or Section 4.16 of the Indenture, check the appropriate box:
Section 4.15 [ ] Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount:
$__________
Date:_____________
Your Signature:________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:_____________________________________
Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor program reasonably acceptable to the Trustee)
A-16
<PAGE>
EXHIBIT B
TO THE INDENTURE
[FORM OF FACE OF DEFINITIVE NOTE]
THIS NOTE IS A DEFINITIVE NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S, (2) AGREES THAT
IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF
TIME AS PERMITTED BY RULE 144 (k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF
ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE
LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT THE PURCHASES FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
(3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHICH THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT
THE
B-1
<PAGE>
ISSUER AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSE (D) OR (E), TO REQUIRE THE DELIVERY OF ANY
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATION OR TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION
S UNDER THE SECURITIES ACT.
B-2
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
13.0% Conversion Senior Subordinated Discount Note due 2009
CUSIP No.: __________
No.____ $_________
CYBERNET INTERNET SERVICES INTERNATIONAL, INC., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
promises to pay ______________________, or registered assigns, upon surrender
hereof the principal sum of U.S.$________, on August 15, 2009.
Interest Payment Dates: February 15 and August 15, commencing February 15,
2005
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
B-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.
CYBERNET INTERNET SERVICES
INTERNATIONAL, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
Certificate of Authentication:
This is one of the Notes referred to
in the within-mentioned Indenture:
THE BANK OF NEW YORK, as Trustee,
By:_____________________________
Name:
Title:
B-4
<PAGE>
[FORM OF REVERSE]
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
13.0% Convertible Senior Subordinated Discount Note due 2009
1. Interest. CYBERNET INTERNET SERVICES INTERNATIONAL, INC., a Delaware
--------
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at the rate and in the manner specified below. The Notes will accrete
at a rate per annum of 13.0% on the principal amount then outstanding, semi-
annually on each February 15 and August 15, until August 15, 2004. There will
be no accrual of cash interest on the Notes until August 15, 2004 and no payment
of cash interest until February 15, 2005. From and after August 15, 2004,
interest on the Notes will accrue at 13.0% per annum on the principal amount
then outstanding, and be payable to the Holder hereof semi-annually in arrears
on each February 15 and August 15, or if any such day is not a Business Day on
the next succeeding Business Day. From and after August 15, 2004, interest on
the Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from August 15, 2004. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods), on
any Additional Amounts, and on any Liquidated Damages, from time to time on
demand at the rate borne by the Notes plus 1.5% per annum to the extent lawful.
Any interest paid on this Note shall be increased to the extent necessary to pay
Additional Amounts as set forth herein.
2. Liquidated Damages; Adjustment of Conversion Ratio. Pursuant to the
--------------------------------------------------
Registration Rights Agreement, the Company has agreed to file a shelf
registration statement (the "Resale Shelf Registration Statement") with the
Commission with respect to resales of the Notes (which Resale Shelf Registration
Statement shall also register the sale of the underlying Common Stock issuable
upon conversion thereof) and use its best efforts to (i) cause such Resale Shelf
Registration Statement to be declared effective by the Commission and (ii) keep
such Resale Shelf Registration Statement continuously effective, supplemented
and amended to ensure that it is available for resales of Notes by holders
entitled to this benefit and to ensure that such Resale Shelf Registration
Statement conforms and continues to conform with the requirements of the
Registration Rights Agreement, the Securities Act and the policies, rules and
regulations of the Commission, as announced from time to time, until, subject to
certain exceptions specified in the Registration Rights Agreement, such time as
no Notes remain as Transfer Restricted Securities (as defined below). The
Holders shall be entitled to receive payment of additional interest in the form
of Liquidated Damages in the event such Resale Shelf Registration Statement is
not declared effective and in certain other events, subject, in each case, to
certain conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement. Liquidated Damages which may be payable pursuant
to the Registration Rights Agreement shall be payable in the same manner as set
forth herein with respect to the stated interest. The provisions of the
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<PAGE>
Registration Rights Agreement relating to such Liquidated Damages are
incorporated herein by reference and made a part hereof as if set forth herein
in full. The Company shall provide written notice to the Trustee of the accrual
and amount of Liquidated Damages, if any, not less than ten (10) Business Days
prior to each Interest Payment Date. Absent such notice, the Trustee shall be
conclusively entitled to presume that no Liquidated Damages have accrued and are
owing. For purposes of the foregoing "Transfer Restricted Securities" means each
Note and the Common Stock issuable upon conversion thereof until (i) the date on
which such Note (and the Common Stock issuable upon conversion thereof) has been
effectively registered under the Securities Act and disposed of in accordance
with the Resale Shelf Registration Statement, (ii) the date on which such Note
(and the Common Stock issuable upon conversion thereof) is distributed to the
public pursuant to Rule 144 under the Securities Act (or any similar provision
then in effect) or is saleable pursuant to Rule 144(k) under the Act (or any
similar provision then in effect) or (iii) the date on which such Note (and the
Common Stock issuable upon the conversion thereof) ceases to be outstanding.
The Company has also agreed with the Initial Purchaser, for the benefit of
the Holders of the Notes, that it will use its best efforts to cause to become
effective no later than one year after the Closing Date, a shelf registration
statement with respect to the issuance of the Conversion Shares upon conversion
of the Notes, or if the Company determines that, notwithstanding its best
efforts, the Commission will not declare such registration statement effective,
a shelf registration statement with respect to the resale of the Conversion
Shares (either of such shelf registration statements, a "Conversion Shelf
Registration Statement"). The Company is required to use its best efforts, at
its cost, to maintain the effectiveness of the Conversion Shelf Registration
Statement until the earlier of (i) such time as all Notes have been converted or
redeemed and (ii) August 15, 2009, or in the case of a Conversion Shelf
Registration Statement with respect to the resale of Conversion Shares, until
the earlier of (i) the date on which all Notes can be resold by holders thereof
without restriction and without registration under the Securities Act and (ii)
such time as all the Conversion Shares covered by such registration statement
have been resold pursuant to such registration statement. Holders of Notes will
not be named as selling security holders in a Conversion Shelf Registration
Statement covering the issuance of the Conversion Shares, but would be named in
a Conversion Shelf Registration Statement covering resale of the Conversion
Shares, if applicable. If such a Conversion Shelf Registration Statement is not
declared effective on or prior to the date that is one year after the Closing
Date, the denominator of the Conversion Ratio will be decreased by 2.04%.
Holders of Notes will be able to convert their Notes only if a registration
statement relating to the Conversion Shares underlying the Notes is then
effective and available, or the conversion of the Notes is exempt from the
registration requirements of the Securities Act, and such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the states or other jurisdictions in which the various holders of the
Notes reside. The provisions of the Registration Rights Agreement relating to
the Conversion Shelf Registration Statement and the decrease of the Conversion
Ratio are incorporated herein by reference and made a part hereof as if set
forth herein in full.
B-6
<PAGE>
3. Additional Amounts. All payments made by the Company on the Notes
------------------
(whether or not in the form of Definitive Notes) will be made without
withholding or deduction for, or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature (collectively,
"Taxes") imposed or levied by or on behalf of Germany or any jurisdiction in
which the Company or any Successor Company is organized or is otherwise resident
for tax purposes or any political subdivision thereof or any authority having
power to tax therein or any jurisdiction from or through which payment is made
(each a "Relevant Taxing Jurisdiction"), unless the withholding or deduction of
such Taxes is then required by law. If any deduction or withholding for, or on
account of, any Taxes of any Relevant Taxing Jurisdiction, shall at any time be
required on any payments made by the Company with respect to the Notes,
including payments of Accreted Value, principal, redemption price, interest or
premium, the Company will pay such additional amounts (the "Additional Amounts")
as may be necessary in order that the net amounts received in respect of such
payments by the Holders of the Notes or the Trustee, as the case may be, after
such withholding or deduction, equal the respective amounts which would have
been received in respect of such payments in the absence of such withholding or
deduction; except that no such Additional Amounts will be payable with respect
to:
(a) any payments on a Note held by or on behalf of a Holder or
beneficial owner who is liable for such Taxes in respect of such Note by
reason of the Holder or beneficial owner having some connection with the
Relevant Taxing Jurisdiction (including being a citizen or resident or
national of, or carrying on a business or maintaining a permanent
establishment in, or being physically present in, the Relevant Taxing
Jurisdiction) other than by the mere holding of such Note or enforcement of
rights thereunder or the receipt of payments in respect thereof;
(b) any Taxes that are imposed or withheld as a result of a change in
law after the Issue Date where such withholding or imposition is by reason
of the failure of the Holder or beneficial owner of the Note to comply with
any request by the Company to provide information concerning the
nationality, residence or identity of such Holder or beneficial owner or to
make any declaration or similar claim or satisfy any information or
reporting requirement, which is required or imposed by a statute, treaty,
regulation or administrative practice of the Relevant Taxing Jurisdiction
as a precondition to exemption from all or part of such Taxes;
(c) except in the case of the winding up of the Company, any Note
presented for payment (where presentation is required) in the Relevant
Taxing Jurisdiction; or
(d) any Note presented for payment (where presentation is required)
more than 30 days after the relevant payment is first made available for
payment to the Holder.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Note been the Holder of the Note, he would not have been entitled
to payment of Additional Amounts by reason of clauses (a) to (d) inclusive
above.
B-7
<PAGE>
4. Method of Payment. The Company shall pay interest on the Notes (except
-----------------
defaulted interest) to the Person in whose name this Note is registered at the
close of business on the Record Date for such interest. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in dollars or in such other coin or currency of the
United States of America that at the time of payment which is legal tender for
payment of public and private debts. Immediately available funds for the
payment of Accreted Value, the principal of (and premium, if any), interest,
Additional Amounts, if any, and Liquidated Damages, if any, on this Note due on
any Interest Payment Date, Maturity Date, Redemption Date or other repurchase
date will be made available to the Paying Agent to permit the Paying Agent to
pay such funds to the Holders on such respective dates.
5. Paying Agent and Registrar. Initially, The Bank of New York will act
--------------------------
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act in any such capacity.
6. Indenture. The Company issued the Notes under an Indenture, dated as
---------
of August 26, 1999 (the "Indenture"), between the Company and The Bank of New
York (the "Trustee"). This Note is one of a duly authorized issue of [Original]
[Additional] Notes (as defined in the Indenture) of the Company designated as
its 13.0% Convertible Senior Subordinated Discount Notes due 2009 (together with
the [Original] [Additional] Notes, the "Notes"). The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"), as in effect on the date of the Indenture until such time as the
Indenture is qualified under the TIA, and thereafter as in effect on the date on
which the Indenture is qualified under the TIA. Notwithstanding anything to the
contrary herein, the Notes are subject to all such terms, and Holders of Notes
are referred to the Indenture and the TIA for a statement of them. The Notes are
not secured by any of the assets of the Company. The Notes are limited in
aggregate principal amount to $100,000,000 subject to the terms of the
Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time.
7. Ranking and Subordination. The Notes will be general unsecured
-------------------------
obligations of the Company and will rank in all respects pari passu with all
----------
other senior subordinated Indebtedness of the Company. The Notes will rank
senior to all existing and future Indebtedness of the Company that is neither
Senior Indebtedness nor Senior Subordinated Indebtedness and only Indebtedness
of the Company that is Senior Indebtedness shall rank senior to the Notes in
accordance with the Indenture. The Notes are subordinated to Senior
Indebtedness (as defined in the Indenture). To the extent provided in the
Indenture, Senior Indebtedness must be paid before the Notes may be paid by the
Company. The Company agrees, and each Holder by accepting a Note agrees, to the
subordination provisions contained in the Indenture and authorizes the
B-8
<PAGE>
Trustee to give effect to such provisions, and each Holder appoints the Trustee
his attorney-in-fact for any and all such purposes.
8. Optional Redemption. The Notes will be redeemable, at the Company's
-------------------
option, in whole or in part, on and after August 15, 2004 upon not less than 30
nor more than 60 days' prior notice published in a leading newspaper having a
general circulation in New York (which is expected to be The Wall Street
Journal) and in Frankfurt (which is expected to be the Frankfurter Allgemeine
Zeitung) (and if, and so long as the Notes are listed, admitted or eligible for
trading on a stock exchange or trading market and the rules of such stock
exchange or trading market shall so require, published in a newspaper having a
general circulation in the locations which such stock exchange or trading market
shall require) and mailed by first-class mail to each Holder's registered
address, at the redemption prices (expressed as a percentage of principal
amount) set forth below, plus accrued and unpaid interest, Additional Amounts,
if any, and Liquidated Damages, if any, to the applicable redemption date (and,
subject to the rights of Holders of record on the relevant record date to
receive interest and Additional Amounts, if any, and Liquidated Damages, if any,
due on the relevant interest payment date in respect thereof), if redeemed
during the twelve- month period beginning on August 15 of each of the years
indicated below:
Redemption
Year Price
---- -----
2004................................................... 106.500%
2005................................................... 104.333%
2006................................................... 102.167%
2007 and thereafter.................................... 100.000%
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal securities exchange, if any, on which the Notes are listed or, if
such Notes are not so listed or such exchange prescribes no method of selection,
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate, although no Note of $1,000 in
original principal amount or less shall be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on the Notes or portions
thereof called for redemption.
9. Special Tax Redemption. The Notes may be redeemed, at the option of
----------------------
the Company in whole but not in part, at any time upon giving not less than 30
nor more than 60 days' notice to the Holders (which notice shall be
irrevocable), at a redemption price equal to the principal amount thereof,
together with accrued and unpaid interest and Liquidated Damages, if any, to the
B-9
<PAGE>
date fixed by the Company for redemption (a "Tax Redemption Date"), and, all
Additional Amounts, if any, and Liquidated Damages, if any, then due and which
will become due on the Tax Redemption Date as a result of the redemption or
otherwise, if the Company determines that, as a result of (i) any change in, or
amendment to, the laws or treaties (or any regulations or rulings promulgated
thereunder) of The Federal Republic of Germany (or any political subdivision or
taxing authority thereof) affecting taxation which becomes effective on or after
the Issue Date, or (ii) any change in or new or different position regarding the
application, administration or interpretation of such laws, treaties,
regulations or rulings (including a holding, judgment or order by a court of
competent jurisdiction), which change, amendment, application or interpretation
becomes effective on or after the Issue Date, the Company is, or on the next
Interest Payment Date would be, required to pay Additional Amounts, and the
Company determines that such payment obligation cannot be avoided by the Company
taking reasonable measures. Notwithstanding the foregoing, no such notice of
redemption shall be given earlier than 90 days prior to the earliest date on
which the Company would be obligated to make such payment or withholding if a
payment in respect of the Notes were then due. Prior to the publication or,
where relevant, mailing of any notice of redemption of the Notes pursuant to the
foregoing, the Company will deliver to the Trustee an opinion of an independent
tax counsel of recognized international standing to the effect that the
circumstances referred to above exist. The Trustee shall accept such opinion as
sufficient evidence of the satisfaction of the conditions precedent described
above, in which event it shall be conclusive and binding on the Holders.
10. Notice of Redemption. Notice of redemption will be given at least 30
--------------------
days but not more than 60 days before the redemption date by publishing in a
leading newspaper having a general circulation in New York (which is expected to
be The Wall Street Journal) and in Frankfurt (which is expected to be the
Frankfurter Allgemeine Zeitung) (and, if and so long as the Notes are listed,
admitted or eligible for trading on a stock exchange or trading market and the
rules of such stock exchange or trading market shall so require, a newspaper
having a general circulation in the locations which such stock exchange or
trading market requires) and mailed to Holders by first-class mail at their
respective addresses as they appear on the registration books of the Registrar.
Notes in denominations of $1,000 principal amount at maturity may be redeemed
only in whole. The Trustee may select for redemption portions (equal to $1,000
or any integral multiple thereof) of the principal amount at maturity of Notes
that have denominations larger than $1,000.
Except as set forth in the Indenture, from and after any redemption date,
if monies for the redemption of the Notes called for redemption shall have been
deposited with the Paying Agent for redemption on such redemption date, then,
unless the Company defaults in the payment of such Redemption Price, the Notes
called for redemption will cease to bear interest (or increase in Accreted
Value, as the case may be), Additional Amounts, if any, or Liquidated Damages,
if any, and the only right of the Holders of such Notes will be to receive
payment of the Redemption Price.
B-10
<PAGE>
11. Conversion. Subject to the provisions of the Indenture, unless
----------
previously redeemed, the Notes are convertible (in denominations of $1,000
principal amount at maturity or integral multiples thereof), at the option of
the holder thereof, into Capital Stock of the Company at any time after 365 days
following the Issue Date and prior to the maturity date. The number of shares
of Capital Stock of the Company ("Conversion Shares") issuable upon conversion
of the Notes is equal to the Accreted Value of the Notes being converted (on the
date of conversion) divided by $25.00, subject to adjustment as provided in the
Indenture (the "Conversion Ratio"). Except as described below, no adjustment
will be made on conversion of any Notes for interest accrued thereon or for
dividends paid on outstanding Capital Stock of the Company. If Notes not called
for redemption are converted (including pursuant to the mandatory conversion
feature described below) after a record date for the payment of interest and
prior to the next succeeding interest payment date, such Notes must be
accompanied by funds equal to the interest payable on such succeeding interest
payment date on the principal amount so converted. The Company is not required
to issue fractional shares upon conversion of Notes (including pursuant to the
mandatory conversion feature described below) and, in lieu thereof, will pay a
cash adjustment based upon the Closing Price on the Neuer Markt of the Common
Stock on the last Trading Day prior to the day of conversion. In the case of
Notes called for redemption, conversion rights will expire at the close of
business on the Trading Day next preceding the date fixed for redemption, unless
the Company defaults in payment of the redemption price.
In addition, if the closing price on the Neuer Markt of the Common Stock
during any period described below has exceeded the price for such period
referred to below for at least 30 consecutive Trading Days ("Market Criteria,"
with the 30-day period being referred to as the "Market Criteria Period"), and
the Conversion Shelf Registration Statement described in paragraph 2 hereof is
effective and available, all of the Notes will be automatically converted into
that number of Conversion Shares derived by application of the Conversion Ratio;
provided, however, that if the Market Criteria is satisfied during the first
year after the Closing Date, the conversion will not occur until the one-year
anniversary of the Closing Date and will occur only if the closing price on the
Neuer Markt of the Common Stock is at least (Euro)32.00 on such date:
Closing
-------
12 Months Beginning Price
------------------- -----
August 15, 1999 (Euro)32.00
August 15, 2000 (Euro)38.46
August 15, 2001 (Euro)44.92
August 15, 2002 (Euro)51.37
August 15, 2003 (Euro)57.83
The denominator of the Conversion Ratio is subject to adjustment as
provided in Section 10.5 of the Indenture.
B-11
<PAGE>
12. Change of Control Offer. Upon the occurrence of a Change of Control,
-----------------------
the Company will be required to make an offer to purchase all or any part (equal
to $1,000 in principal amount at maturity and integral multiples thereof) of the
Notes on the Change of Control Payment Date at a purchase price in cash equal to
(i) if such purchase is prior to August 15, 2004, 101% of the Accreted Value
thereof or (ii) if such purchase is on or after August 15, 2004, 101% of the
aggregate principal amount thereof, in either case, plus accrued and unpaid
interest, thereon to the date of repurchase plus Additional Amounts, if any, and
Liquidated Damages, if any, to the date of repurchase. Holders of Notes that are
subject to an offer to purchase will receive a Change of Control Offer from the
Company prior to any related Change of Control Payment Date and may elect to
have such Notes purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below.
13. Limitation on Disposition of Assets. When the aggregate amount of
-----------------------------------
Excess Proceeds from Asset Sales exceeds (Euro)5.0 million, the Company will be
obligated, within 15 Business Days thereafter, to make an offer to all Holders
and to the extent required by the terms thereof, to all holders of Pari Passu
Notes to purchase on a pro rata basis the maximum principal amount of Notes (or
Accreted Value, as the case may be) and the maximum principal amount (or
accreted value, as the case may be) of any such Pari Passu Notes to which the
Asset Sale Offer applies, that is an integral multiple of $1,000
(or (Euro)1,000, as the case may be) that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the outstanding
principal amount or accreted value or Accreted Value, as the case may be,
thereof, plus accrued and unpaid interest thereon plus Additional Amounts and
Liquidated Damages, if any, to the date fixed for the closing of such offer. If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, subject to applicable law, the Trustee shall
select the Notes to be redeemed in accordance with the Indenture; provided,
however, that no Notes of $1,000 or less shall be purchased in part. Holders of
Notes that are the subject of an offer to purchase will receive an Asset Sale
Offer from the Company prior to any related purchase date and may elect to have
such Notes purchased by completing the form entitled "Option of Holders to Elect
Purchase" appearing below.
14. Denominations; Form. The Definitive Notes are in bearer form, without
-------------------
coupons, in denominations of $1,000 and integral multiples of $1,000.
15. Persons Deemed Owners. The registered Holder of this Note shall be
---------------------
treated as the owner of it for all purposes, subject to the terms of the
Indenture.
16. Unclaimed Funds. If funds for the payment of principal, interest,
---------------
Additional Amounts or Liquidated Damages remain unclaimed for two years, the
Trustee and the Paying Agents will repay the funds to the Company at its written
request. After that, all liability of the Trustee and such Paying Agents with
respect to such funds shall cease.
17. Legal Defeasance and Covenant Defeasance. The Company may be
----------------------------------------
discharged from its obligations under the Indenture and the Notes except for
certain provisions thereof ("Legal
B-12
<PAGE>
Defeasance"), and may be discharged from its obligations to comply with certain
covenants contained in the Indenture ("Covenant Defeasance"), in each case upon
satisfaction of certain conditions specified in the Indenture.
18. Amendment; Supplement; Waiver. Subject to certain exceptions specified
-----------------------------
in the Indenture, the Indenture or the Notes may be amended or supplemented with
the written consent of the Holders of at least a majority in principal amount of
the Notes then outstanding, and any existing Default or Event of Default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the Notes then
outstanding.
19. Restrictive Covenants. The Indenture imposes certain covenants that,
---------------------
among other things, limit the ability of the Company and its Restricted
Subsidiaries to, incur additional Indebtedness, pay dividends or make other
distributions or investments, repurchase Equity Interests or make certain other
Restricted Payments, enter into certain consolidations or mergers or enter into
certain transactions with Affiliates and consummate certain mergers and
consolidations or sales of all or substantially all assets. The limitations are
subject to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.
20. Successors. When a successor assumes all the obligations of its
----------
predecessor under the Notes and the Indenture in accordance with the terms of
the Indenture, the predecessor will be released from those obligations.
21. Defaults and Remedies. If an Event of Default (other than an Event of
---------------------
Default specified in subsections 6.1(h) or (i) of the Indenture) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount at
maturity of the then outstanding Notes may declare all the Notes to be due and
payable immediately in the manner and with the effect provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount at maturity of the Notes then outstanding to
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Notes notice of any continuing Default or Event of
Default (except a Default in payment of Accreted Value, principal, premium,
interest, Additional Amounts, if any, and Liquidated Damages, if any, including
an accelerated payment) if it determines that withholding notice is in their
interest.
22. Trustee Dealings with Company. The Trustee under the Indenture, in its
-----------------------------
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
B-13
<PAGE>
23. No Recourse Against Others. No stockholder, director, officer,
--------------------------
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of the Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
24. Authentication. This Note shall not be valid until the Trustee or
--------------
authenticating agent signs the certificate of authentication on this Note.
25. Abbreviations and Defined Terms. Customary abbreviations may be used
-------------------------------
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act). Unless otherwise defined herein, terms
defined in the Indenture are used herein as defined therein.
26. CUSIP Numbers. Pursuant to a recommendation promulgated by the
-------------
Committee on Uniform Security Identification Procedures, the Company will cause
CUSIP numbers to be printed on the Notes immediately prior to the qualification
of the Indenture under the TIA as a convenience to the Holders of the Notes. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
27. Governing Law. The Indenture and the Notes shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
B-14
<PAGE>
___________________________________________________________
ASSIGNMENT FORM
To assign this Note fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's social security or tax I.D. No.)
and irrevocably appoint agent to transfer this Note on the books of the Company.
The agent may substitute another to act for him.
____________________________________________________________________
Date: _____________ Your Signature: ______________________
____________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
B-15
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.15 or Section 4.16 of the Indenture, check the appropriate box:
Section 4.15 [ ] Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount:
$_________________
Date:_____________
Your Signature:________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: _____________________________________
Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor program reasonably acceptable to the Trustee)
B-16
<PAGE>
EXHIBIT C
TO THE INDENTURE
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Transfers pursuant to Section 2.7(b) of the Indenture)
Cybernet Internet Services International, Inc.
c/o The Bank of New York, as Trustee, Registrar or Paying Agent
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Facsimile: (212) 815-5915
RE: 13.0% Convertible Senior Subordinated Discount Notes due 2009
(the "Notes") of Cybernet Internet Services International, Inc.
Reference is hereby made to the Indenture dated as of August 26, 1999 (the
"Indenture") between Cybernet Internet Services International, Inc. and The Bank
of New York, as Trustee, Registrar and Paying Agent. Capitalized terms used but
not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S.$_________ (being any integral multiple of
U.S.$1,000) principal amount at maturity of Notes beneficially held through
interests in the Rule 144A Global Note (CUSIP No. _________) with DTC in the
name of ________(the "Transferor") account number ________. The Transferor
hereby requests that on [INSERT DATE] such beneficial interest in the Rule 144A
Global Note be transferred or exchanged for an interest in the Regulation S
Global Note (CUSIP (CINS) No. _________) in the same principal denomination and
transfer to (account no. ________). If this is a partial transfer, a minimum
amount of U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof
of the Rule 144A Global Note will remain outstanding.
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer has been effected in
accordance with the transfer restrictions set forth in the Indenture and the
Notes and pursuant to and in accordance with Rule 903 or 904 of Regulation S
under the Securities Act, and accordingly the Transferor further certifies that:
(A) (1) the offer of the Notes was not made to a person in the United
States;
C-1
<PAGE>
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting
on our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither
the Transferor nor any person acting on our behalf knows that the
transaction was prearranged with a buyer in the United States,
(3) no directed selling efforts have been made in contravention
of the requirements of Rule 903(b) or 904(b) of Regulation S, as
applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
OR
--
(B) such transfer is being made in accordance with Rule 144 under the
Securities Act.
C-2
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.
Dated: _____________, ____
[Name of Transferor]
By:________________________
Name:
Title:
Telephone No.:
Please print name and address (including zip code number) _________________
_________________
_________________
C-3
<PAGE>
EXHIBIT D
TO THE INDENTURE
FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM
REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Transfers pursuant to Section 2.7(c) of the Indenture)
Cybernet Internet Services International, Inc.
c/o The Bank of New York, as Trustee, Registrar or Paying Agent
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Facsimile: (212) 815-5915
RE: 13.0% Convertible Senior Subordinated Discount Notes due 2009
(the "Notes") of Cybernet Internet Services International, Inc.
Reference is hereby made to the Indenture dated as of August 26, 1999 (the
"Indenture") between Cybernet Internet Services International, Inc. and The Bank
of New York, as Trustee, Registrar and Paying Agent. Capitalized terms used but
not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S.$__________ (being any integral multiple of
U.S.$1,000) principal amount at maturity of Notes beneficially held through
interests in the Regulation S Global Note (CUSIP (CINS) No. _________) with
[Euroclear] [Cedel] (Common Code No. _______) through DTC in the name of
_______________ (the "Transferor") [Euroclear] [Cedel] account number _________
. The Transferor hereby requests that on [INSERT DATE] such beneficial interest
in the Regulation S Global Note be transferred or exchanged for an interest in
the Rule 144A Global Note (CUSIP No. _________) in the same principal
denomination and transfer to ______________ (DTC account no. ________). If this
is a partial transfer, a minimum of U.S.$1,000 and any integral multiple of
U.S.$1,000 in excess thereof of the Regulation S Global Note will remain
outstanding.
In connection with such request, and in respect of such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with Rule 144A under the Securities Act to a transferee that the
Transfer or reasonably believes is purchasing the Notes for its own account or
an account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in each case in a transaction meeting
the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction.
D-1
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
Dated:_______________, ____
[Name of Transferor]
By:___________________________
Name:
Title:
Telephone No.:
Please print name and address (including zip code number) ______________
______________
______________
D-2
<PAGE>
EXHIBIT 23.1
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 12, 1999 and November 10, 1998, in the
Registration Statement (Form S-4) and related prospectus of Cybernet Internet
Services International, Inc. for the registration of $150,000,000 of its 14.0%
Senior Notes due 2009.
/s/ Schitag Ernst & Young
------------------------------
Schitag Ernst & Young
Munich, Germany
October 7, 1999
<PAGE>
EXHIBIT 23.2
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 12, 1999, in the Registration Statement (Form
S-4) and related prospectus of Cybernet Internet Services International, Inc.
for the registration of $150,000,000 of its 14.0% Senior Notes due 2009.
Ernst & Young,
Wirtschaftsprufungs-Und,
Steuerberatungsellschaft MBH
/s/ Wolfgang Wildner /s/ Gerd Haberfehlner
----------------------- -------------------------
(Wolfgang Wildner) (Gerd Haberfehlner)
Vienna, Austria
October 7, 1999
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF GRANT THORNTON SPA APPEARS HERE]
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
As independent auditors of Flashnet S.p.A., we consent to the reference to our
firm under the caption "Experts" and to the use of our report dated May 14,
1999, with respect to the financial statements of Flashnet S.p.A. as of December
31, 1998 and for the year then ended, in the Registration Statement (Form S-4)
and related prospectus of Cybernet Internet Services International, Inc. for the
registration of $150,000,000 of its 14% Senior Notes due 2009.
/s/ Felice Duca
-----------------------------
Felice Duca
(Partner)
Rome, Italy
October 7, 1999
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
Cybernet Internet Services International, Inc.
Offer to Exchange its
14.0% Senior Notes due 2009
which have been registered under the Securities Act of 1933, as amended,
for any and all of its outstanding
14.0% Senior Notes due 2009
that were issued and sold in a transaction
exempt from registration under the Securities Act
Pursuant to the Prospectus dated October 7, 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
The Bank of New York
<TABLE>
<S> <C>
By Registered or Certified Mail: Facsimile Transmissions:
The Bank of New York (Eligible Institutions Only)
101 Barclay Street (212) 815-6339
Floor 7 East
New York, New York 10286
Attention: Enrique Lopez
Reorganization Section
By Hand or Overnight Delivery: To Confirm by Telephone
The Bank of New York or for Information Call:
101 Barclay Street, Ground Level (212) 815-2742
Corporate Trust Services Window
New York, New York 10286
Attention: Enrique Lopez
Reorganization Section
</TABLE>
----------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER
OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed either if (a) certificates are
to be forwarded herewith, or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth under "The Exchange
Offer-Procedures for Tendering" in the Prospectus and an Agent's Message (as
defined below) is not delivered. Certificates, or book-entry confirmation of a
book-entry transfer of such Outstanding Debt into the
<PAGE>
Exchange Agent's account at The Depository Trust Company ("DTC"), as well as
this Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to November 8, 1999 (the
"Expiration Date"). Tenders by book-entry transfer also may be made by
delivering an Agent's Message in lieu of this Letter of Transmittal. The term
"book-entry confirmation" means a confirmation of a book-entry transfer of
Outstanding Debt into the Exchange Agent's account at DTC. The term "Agent's
Message" means a message, transmitted by DTC to and received by the Exchange
Agent and forming a part of a book-entry confirmation, which states that DTC
has received an express acknowledgment from the tendering participant, which
acknowledgment states that such participant has received and agrees to be bound
by this Letter of Transmittal and that Cybernet Internet Services
International, Inc., a Delaware corporation (the "Company"), may enforce this
Letter of Transmittal against such participant.
Holders (as defined below) of Outstanding Debt whose certificates (the
"Certificates") for such Outstanding Debt are not immediately available or who
cannot deliver their Certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date or who cannot complete the
procedures for book-entry transfer on a timely basis must tender their
Outstanding Debt according to the guaranteed delivery procedures set forth in
"The Exchange Offer--Procedures for Tendering" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF OUTSTANDING NOTES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Outstanding Debt
Registered Holder(s) (Attach additional list if necessary)
- ------------------------------------------------------------------------------------------------
Principal Amount of
Aggregate Principal Outstanding Debt
Certificate Amount of Tendered
If blank, please print name and address Number(s)* Outstanding Debt (if less than all)**
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total:
</TABLE>
- --------------------------------------------------------------------------------
*Need not be completed by book-entry Holders.
** Outstanding Debt may be tendered in whole or in part in multiples of
$1,000. All Outstanding Debt held shall be deemed tendered unless a
lesser number is specified in this column. See Instruction 4.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED OUTSTANDING DEBT IS BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
DTC Account Number ________________Transaction Code Number _________________
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OUTSTANDING DEBT IS BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING (SEE INSTRUCTION 1):
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution ______________________________________________
DTC Account Number ________________Transaction Code Number _________________
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OUTSTANDING
DEBT IS TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
3
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Cybernet Internet Services International,
Inc., a Delaware corporation (the "Company"), the above described principal
amount of the Company's 14.0% Senior Notes due 2009 (the "Outstanding Debt") in
exchange for an equivalent amount of the Company's 14.0% Senior Notes due 2009
(the "Exchange Debt"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), upon the terms and subject to the
conditions set forth in the Prospectus October 7, 1999 (as the same may be
amended or supplemented from time to time, the "Prospectus"), receipt of which
is hereby acknowledged, and in this Letter of Transmittal (which, together with
the Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Outstanding Debt tendered herewith in accordance with the terms
and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to such Outstanding
Debt as is being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of the
Company in connection with the Exchange Offer) with respect to the tendered
Outstanding Debt, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with and interest) subject only to
the right of withdrawal described in the Prospectus, to (i) deliver
Certificates for Outstanding Debt to the Company together with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company,
upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange
Debt to be issued in exchange for such Outstanding Debt, (ii) present
Certificates for such Outstanding Debt for transfer, and to transfer the
Outstanding Debt on the books of the Company, and (iii) receive for the account
of the Company all benefits and otherwise exercise all rights of beneficial
ownership of such Outstanding Debt, all in accordance with the terms and
conditions of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, sell, assign and transfer the
Outstanding Debt tendered hereby and that, when the same is accepted for
exchange, the Company will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances,
and that the Outstanding Debt tendered hereby is not subject to any adverse
claims or proxies. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Company or the Exchange Agent to be
necessary or desirable to complete the exchange, assignment and transfer of the
Outstanding Debt tendered hereby, and the undersigned will comply with its
obligations under the Registration Rights Agreement. The undersigned has read
and agrees to all of the terms of the Exchange Offer.
The name(s) and address(es) of the registered Holder(s) of the Outstanding
Debt tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Outstanding Debt.
The Certificate number(s) and the Outstanding Debt that the undersigned wishes
to tender should be indicated in the appropriate boxes above.
If any tendered Outstanding Debt is not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Outstanding
Debt than are tendered or accepted for exchange, Certificates for such
nonexchanged or nontendered Outstanding Debt will be returned (or, in the case
of Outstanding Debt tendered by book-entry transfer, such Outstanding Debt will
be credited to an account maintained at DTC), without expense to the tendering
Holder, promptly following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Outstanding Debt pursuant to any
one of the procedures described in "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions attached hereto will, upon
the Company's acceptance for exchange of such tendered Outstanding Debt,
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the
4
<PAGE>
conditions of the Exchange Offer. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Company may not be
required to accept for exchange any of the Outstanding Debt tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Debt be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Outstanding Debt, that such Exchange Debt be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Outstanding Debt not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Outstanding Debt, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please deliver Exchange Debt to the undersigned at the
address shown below the undersigned's signature.
By tendering Outstanding Debt and executing this Letter of Transmittal or
effecting delivery of an Agent's Message in lieu thereof, the undersigned
hereby represents and agrees that (i) the undersigned is not an "affiliate" of
the Company, (ii) any Exchange Debt to be received by the undersigned is being
acquired in the ordinary course of its business, (iii) the undersigned has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of Exchange Debt to be received in
the Exchange Offer, and (iv) if the undersigned is not a broker-dealer, the
undersigned is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such Exchange Debt. The Company
may require the undersigned, as a condition to the undersigned's eligibility to
participate in the Exchange Offer, to furnish to the Company (or an agent
thereof) in writing information as to the number of "beneficial owners" within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), on behalf of whom the undersigned holds the Outstanding
Debt to be exchanged in the Exchange Offer. If the undersigned is a broker-
dealer that will receive Exchange Debt for its own account in exchange for
Outstanding Debt, it represents that the Outstanding Debt to be exchanged for
Exchange Debt was acquired by it as a result of market-making activities or
other trading activities and acknowledges that it will deliver a Prospectus in
connection with any resale of such Exchange Debt; however, by so acknowledging
and by delivering a Prospectus, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement relating to the Outstanding Debt, the Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer (as defined below) in connection with resales of Exchange Debt
received in exchange for Outstanding Debt, where such Outstanding Debt was
acquired by such Participating Broker-Dealer for its own account as a result of
market-making activities or other trading activities, for a period ending 180
days after the effective date of the registration statement relating to the
Exchange Debt (the "Effective Date") (subject to extension under certain
limited circumstances described in the Prospectus) or, if earlier, when all
such Exchange Debt has been disposed of by such Participating Broker-Dealer. In
that regard, each broker-dealer who acquired Outstanding Debt for its own
account as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), by tendering such Outstanding Debt and
executing this Letter of Transmittal or effecting delivery of an Agent's
Message in lieu thereof, agrees that, upon receipt of notice from the Company
of the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in the Prospectus untrue in
any material respect or which cause the Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference therein, in light of the circumstances under which they were made,
not misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of Exchange Debt pursuant to the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to the
Participating Broker-Dealer or the Company has given notice that the sale of
the Exchange Debt may be resumed, as the case may be. If the Company gives such
notice to suspend the sale of the Exchange Debt, it shall extend the 180-day
period referred to above during which Participating Broker-
5
<PAGE>
Dealers are entitled to use the Prospectus in connection with the resale of
Exchange Debt by the number of days during the period from and including the
date of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the supplemented or amended
Prospectus necessary to permit resales of the Exchange Debt or to and including
the date on which the Company has given notice that the sale of Exchange Debt
may be resumed, as the case may be.
As a result, a Participating Broker-Dealer who intends to use the Prospectus
in connection with resales of Exchange Debt received in exchange for
Outstanding Debt pursuant to the Exchange Offer must notify the Company, or
cause the Company to be notified, on or prior to the Expiration Date, that it
is a Participating Broker-Dealer. Such notice may be given in the space
provided above or may be delivered to the Exchange Agent at the address set
forth in the Prospectus under "The Exchange Offer--Exchange Agent."
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Outstanding Debt tendered hereby. All
authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
The undersigned, by completing the box entitled "Description of Outstanding
Debt" above and signing this letter, will be deemed to have tendered the
Outstanding Debt as set forth in such box.
6
<PAGE>
IMPORTANT
HOLDERS: SIGN HERE
(Please Complete Substitute Form W-9 herein)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Signature(s) of Holder(s)
Date: _____________________________
(Must be signed by the registered holder(s) exactly as name(s) appear(s)
on Certificate(s) for the Outstanding Debt hereby tendered or on a
security position listing or by person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith. If signature
is by trustee, executor, administrator, guardian, attorney-in-fact,
officer of corporation or other person acting in a fiduciary or
representative capacity, please provide the following information and see
Instruction 2 below.)
Name(s): __________________________________________________________________
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(Please Print)
Capacity(ies): ____________________________________________________________
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Address: __________________________________________________________________
---------------------------------------------------------------------------
(Include Zip Code)
Telephone Number (with U.S. area code or international prefix): ___________
(See Substitute Form W-9 herein)
GUARANTEE OF SIGNATURE(S)
(See Instruction 2 below)
Authorized Signature: _____________________________________________________
Name: _____________________________________________________________________
---------------------------------------------------------------------------
(Please Type or Print)
Title: ____________________________________________________________________
Name of Firm: _____________________________________________________________
Address: __________________________________________________________________
---------------------------------------------------------------------------
(Include Zip Code)
Telephone Number (with U.S. area code or international prefix): ___________
Date: _____________________________
7
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SIGNATURE GUARANTEE REQUIRED--
SEE INSTRUCTION 2)
TO BE COMPLETED ONLY if Exchange
Debt or Outstanding Debt not
tendered is to be issued in the
name of someone other than the
registered Holder of the
Outstanding Debt whose name(s)
appear(s) above.
[_] Outstanding Debt not tendered
to:
[_] Exchange Debt to:
Name: ____________________________
(PLEASE PRINT)
Address: _________________________
----------------------------------
----------------------------------
----------------------------------
(INCLUDE ZIP-CODE)
----------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
SPECIAL ISSUANCE INSTRUCTIONS
(SIGNATURE GUARANTEE REQUIRED--
SEE INSTRUCTION 2)
TO BE COMPLETED ONLY if Exchange
Debt or Outstanding Debt not
tendered is to be sent to someone
other than the registered Holder
of the Outstanding Debt whose
name(s) appear(s) above, or such
registered Holder at an address
other than that shown above.
[_] Outstanding Debt not tendered
to:
[_] Exchange Debt to:
Name: ____________________________
(PLEASE PRINT)
Address: _________________________
----------------------------------
----------------------------------
----------------------------------
(INCLUDE ZIP-CODE)
8
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith, or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering" in the Prospectus and an Agent's
Message is not delivered. Certificates, or timely confirmation of a book-entry
transfer of such Outstanding Debt into the Exchange Agent's account at DTC, as
well as this Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to the expiration
date of the Exchange Offer (the "Expiration Date"). Tenders by book-entry
transfer may also be made by delivering an Agent's Message in lieu thereof.
Outstanding Debt may be tendered in whole or in part in integral multiples of
$1,000.
Holders who wish to tender their Outstanding Debt and (i) whose Outstanding
Debt is not immediately available, or (ii) who cannot deliver their Outstanding
Debt, this Letter of Transmittal and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or (iii) who cannot complete
the procedures for delivery by book-entry transfer on a timely basis, may
tender their Outstanding Debt by properly completing and duly executing a
Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for Tendering" in the Prospectus.
Pursuant to such procedures: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made
available by the Company, must be received by the Exchange Agent on or prior to
the Expiration Date; and (iii) the Certificates (or a book-entry confirmation)
representing all tendered Outstanding Debt, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent within five business days after the Expiration Date, all as
provided in "The Exchange Offer--Procedures for Tendering" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice of Guaranteed
Delivery. For Outstanding Debt to be properly tendered pursuant to the
guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery on or prior to the Expiration Date. As used herein and in
the Prospectus, "Eligible Institution" means a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein): (i) a bank; (ii) a broker,
dealer, municipal securities broker or dealer or government securities broker
or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association.
The method of delivery of Certificates, this Letter of Transmittal and all
other required documents is at the option and sole risk of the tendering
Holder, and the delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, then registered mail with return
receipt requested, properly insured, or overnight delivery service is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering Holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required if:
i. this Letter of Transmittal is signed by the registered Holder (which
term, for purposes of this document, shall include any participant in
DTC whose name appears on a security position listing
9
<PAGE>
as the owner of the Outstanding Debt (the "Holder")) of Outstanding
Debt tendered herewith, unless such Holder(s) has completed either
the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" above; or
ii. such Outstanding Debt is tendered for the account of a firm that is
an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. Inadequate Space. If the space provided in the box captioned "Description
of Outstanding Debt" is inadequate, the Certificate number(s) and/or the
principal amount of Outstanding Debt and any other required information should
be listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. Partial Tenders and Withdrawal Rights. Tenders of Outstanding Debt will be
accepted only in integral multiples of $1,000. If less than all the Outstanding
Debt evidenced by any Certificate submitted is to be tendered, fill in the
principal amount of Outstanding Debt which is to be tendered in the box
entitled "Principal Amount of Outstanding Debt Tendered." In such case, new
Certificate(s) for the remainder of the Outstanding Debt that was evidenced by
your old Certificate(s) will only be sent to the Holder of the Outstanding
Debt, promptly after the Expiration Date. All Outstanding Debt represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Outstanding Debt may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written notice of
withdrawal or facsimile transmission of such notice of withdrawal must be
timely received by the Exchange Agent at one of its addresses set forth above
or in the Prospectus on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Outstanding
Debt to be withdrawn, the aggregate principal amount of Outstanding Debt to be
withdrawn, and (if Certificates or Outstanding Debt have been tendered) the
name of the registered Holder of the Outstanding Debt as set forth on the
Certificate for the Outstanding Debt, if different from that of the person who
tendered such Outstanding Debt. If Certificates for the Outstanding Debt have
been delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Outstanding Debt, the tendering
Holder must submit the serial numbers shown on the particular Certificates for
the Outstanding Debt to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
Outstanding Debt tendered for the account of an Eligible Institution. If
Outstanding Debt has been tendered pursuant to the procedures for book-entry
transfer set forth in the Prospectus under "The Exchange Offer--Procedures for
Tendering," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Outstanding Debt, in which
case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Outstanding Debt may not be rescinded. Outstanding Debt properly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer-- Procedures for Tendering."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
The Company, any affiliates or assigns of the Company, the Exchange Agent or
any other person shall not be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification. Any Outstanding Debt which has been tendered but
which is withdrawn will be returned to the Holder thereof without cost to such
Holder promptly after withdrawal.
5. Signatures on Letter of Transmittal, Assignments and Endorsements. If this
Letter of Transmittal is signed by the registered Holder(s) of the Outstanding
Debt tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any Outstanding Debt tendered hereby is owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
10
<PAGE>
If any tendered Outstanding Debt is registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and, unless waived by the Company,
must submit proper evidence satisfactory to the Company, in its sole
discretion, of each such person's authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Outstanding Debt listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) is required unless Exchange Debt is to
be issued in the name of a person other than the registered Holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the registered
owner(s) of the Outstanding Debt listed, the Certificates must be endorsed or
accompanied by appropriate bond powers, signed exactly as the name or names of
the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Outstanding Debt may require in
accordance with restrictions on transfer applicable to the Outstanding Debt.
Signatures on such Certificates or bond powers must be guaranteed by an
Eligible Institution.
6. Special Issuance and Delivery Instructions. If Exchange Debt is to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Debt is to be sent to someone other than the signer
of this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Outstanding Debt not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. Irregularities. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Outstanding Debt, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for which, may, in the view
of counsel to the Company be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the
Exchange Offer set forth in the Prospectus under "The Exchange Offer" or any
conditions or irregularities in any tender of Outstanding Debt of any
particular Holder whether or not similar conditions or irregularities are
waived in the case of other Holders. The Company's interpretation of the terms
and conditions of the Exchange Offer (including this Letter of Transmittal and
the instructions hereto) will be final and binding. No tender of Outstanding
Debt will be deemed to have been validly made until all irregularities with
respect to such tender have been cured or waived. The Company, any affiliates
or assigns of the Company, the Exchange Agent, or any other person shall not be
under any duty to give notification of any irregularities in tenders or incur
any liability for failure to give such notification.
8. Questions, Requests for Assistance and Additional Copies. Questions and
requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% Backup Withholding; Substitute Form W-9. Under the U.S. Federal income
tax law, a Holder whose tendered Outstanding Debt is accepted for exchange is
required to provide the Exchange Agent with such Holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the Holder or other payee to a $50 penalty. In addition,
payments to such Holders or other payees with respect to Outstanding Debt
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
11
<PAGE>
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
Holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the Holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Substitute Form W-
9. If the Holder furnishes the Exchange Agent with its TIN within 60 days after
the date of the Substitute Form W-9, the amounts retained during the 60-day
period will be remitted to the Holder and no further amounts shall be retained
or withheld from payments made to the Holder thereafter. If, however, the
Holder has not provided the Exchange Agent with its TIN within such 60-day
period, amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Outstanding Debt or of the last transferee appearing on the transfers
attached to, or endorsed on, the Outstanding Debt. If the Outstanding Debt is
registered in more than one name or is not in the name of the actual owner,
consult the "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" below for additional guidance on which number to report.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to the backup
withholding and reporting requirements. Such Holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status.
Please consult the "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" below for additional guidance on which Holders
are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. Waiver of Conditions. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
11. No Conditional Tenders. No alternative, conditional or contingent tenders
will be accepted. All tendering Holders of Outstanding Debt, by execution of
this Letter of Transmittal, shall waive any right to receive notice of the
acceptance of Outstanding Debt for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of
Outstanding Debt nor shall any of them incur any liability for failure to give
any such notice.
12. Lost, Destroyed or Stolen Certificates. If any Certificate(s)
representing Outstanding Debt have been lost, destroyed or stolen, the Holder
should promptly notify the Exchange Agent. The Holder will then be instructed
as to the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
13. Security Transfer Taxes. Holders who tender their Outstanding Debt for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Exchange Debt is to be delivered to, or is to be issued
in the name of, any person other than the registered Holder of the Outstanding
Debt tendered, or if a transfer tax is imposed for any reason other than the
exchange of Outstanding Debt in connection with the Exchange Offer, then the
amount of any such transfer tax (whether imposed on the registered Holder or
any other persons) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
12
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer.-- Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
- --------------------------------------------
<TABLE>
<CAPTION>
Give the
SOCIAL SECURITY
For this type of account: number of--
- --------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Husband and wife The actual owner
of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor
guardian or committee or incompetent
for a designated ward, person(3)
minor or incompetent
person
7.a. The usual revocable The grantor-
savings trust (grantor trustee(1)
is also trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Give the EMPLOYER
IDENTIFICATION
For this type of account: number of--
- --------------------------------------------
<S> <C>
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
13. Association, club or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural program
payments
--
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner. If the owner does not have an employer
identification number, furnish the owner's social security number.
(5) List first and circle the name of the legal trust, estate or pension trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service (the "IRS") and apply
for a number.
Payees and Payments Exempt from Backup Withholding
The following is a list of payees exempt from backup withholding and for
which no information reporting is required. For interest and dividends, all
listed payees are exempt except item (9). For broker transactions, payees
listed in items (1) through (13) and a person registered under the Investment
Advisors Act of 1940 who regularly acts as a broker are exempt. Payments
subject to reporting under sections 6041 and 6041A are generally exempt from
backup withholding only if made to payees described in items (1) through (7),
except a corporation (other than certain hospitals described in Regulations
section 1.6041-3(c)) that provides medical and health care services or bills
and collects payments for such services is not exempt from backup withholding
or information reporting. Only payees described in items (1) through (5) are
exempt from backup withholding for barter exchange transactions and patronage
dividends.
(1) An organization exempt from tax under section 501(a), or an IRA, or a
custodial account under section 403(b)(7), if the account satisfies the
requirements of section 401(f)(2).
(2) The United States or any of its agencies or instrumentalities.
(3) A state, the District of Columbia, a possession of the United States or
any of their political subdivisions or instrumentalities.
(4) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(5) An international organization or any of its agencies or instrumentalities.
(6) A corporation.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident alien partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT
ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A
COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049 and
6050A.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of taxable interest, dividend and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your correct taxpayer identification number to a payer, you
are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
2
<PAGE>
PAYER'S NAME: THE BANK OF NEW YORK
SUBSTITUTE
Form W-9 Part 1--PLEASE PROVIDE YOUR TIN: __________________
Department of the TIN IN THE BOX AT RIGHT AND Social security number
Treasury Internal CERTIFY BY SIGNING AND or Employer
Revenue Service DATING BELOW. Identification Number
- --------------------------------------------------------------------------------
Part 2--TIN Applied For [_]
Payer's Request for Taxpayer Identification Number (TIN)
- --------------------------------------------------------------------------------
Certification: Under penalties of perjury, I certify that:
(1) the number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding either because: (a) I have not
been notified by the Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a failure to report all
interest or dividends; or (b) the IRS has notified me that I am no longer
subject to backup withholding.
Certification Instructions--You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting of interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding,
you received another notification from the IRS that you were no longer
subject to backup withholding, do not cross out item (2). (Also see
instructions in the enclosed Guidelines.)
- --------------------------------------------------------------------------------
Signature ___________________________________ Date ________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU IN CONNECTION WITH THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING
(OR WILL SOON APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, thirty-one (31%) percent of all reportable payments
made to me thereafter will be withheld until I provide a number.
Signature ___________________________________ Date ________________
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
Cybernet Internet Services International, Inc.
Offer to Exchange its
14.0% Senior Notes due 2009
which have been registered under the Securities Act of 1933, as amended,
for any and all of its outstanding
14.0% Senior Notes due 2009
that were issued and sold in a transaction
exempt from registration under the
Securities Act of 1933
Pursuant to the Prospectus dated October 7, 1999
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's 14.0% Senior Notes due 2009 (the "Outstanding
Debt") are not immediately available, (ii) Outstanding Debt, the Letter of
Transmittal and all other required documents cannot be delivered to The Bank of
New York (the "Exchange Agent") on or prior to the expiration date of the
Exchange Offer (the "Expiration Date"), or (iii) the procedures for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand, overnight courier or mail, or
transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange
Offer Procedures for Tendering" in the Prospectus. In addition, in order to
utilize the guaranteed delivery procedure to tender Outstanding Debt pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal
relating to the Outstanding Debt (or facsimile thereof) must also be received
by the Exchange Agent on or prior to the Expiration Date. Capitalized terms not
defined herein have the meanings assigned to them in the Prospectus.
The Exchange Agent for the Exchange Offer is:
The Bank of New York
By Registered or Certified Mail: Facsimile Transmissions:
The Bank of New York (Eligible Institutions Only)
101 Barclay Street (212) 815-6339
Floor 7 East
New York, New York 10286
Attention: Enrique Lopez
Reorganization Section
By Hand or Overnight Delivery: To Confirm by Telephone
The Bank of New York or for Information Call:
101 Barclay Street, Ground Level (212) 815-2742
Corporate Trust Services Window
New York, New York 10286
Attention: Enrique Lopez
Reorganization Section
----------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES.
IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER
OF TRANSMITTAL.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Cybernet Internet Services International,
Inc., a Delaware corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus dated October 7, 1999 (as the same may
be amended or supplemented from time to time, the "Prospectus"), and the
related Letter of Transmittal (which together constitute the "Exchange Offer"),
receipt of which is hereby acknowledged, the aggregate principal amount of
Outstanding Debt set forth below pursuant to the guaranteed delivery procedures
set forth in the Prospectus under the caption "The Exchange Offer--Procedures
for Tendering."
Aggregate Principal Amount Name(s) of Registered Holder(s):__________
Amount Tendered: $____________* __________________________________________
Certificate No(s) (if available): ______________________________________________
- --------------------------------------------------------------------------------
$ ______________________________________________________________________________
(Total Principal Amount Represented by Outstanding Debt Certificate(s))
If Outstanding Debt Notes will be tendered by book-entry transfer, provide the
following information:
DTC Account Number: ____________________________________________________________
Date: __________________________________________________________________________
* Must be in integral multiples of $1,000.
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X _________________________________ _____________________________________
X _________________________________ _____________________________________
Signature(s) of Owner(s) or Authorized Signatory Date
Telephone Number (with U.S. area code or international prefix):
Must be signed by the holder(s) of the Outstanding Debt as their name(s)
appear(s) on certificates for Outstanding Debt or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer or other person acting in a fiduciary or representative capacity,
such person must set forth his or her full title below and, unless waived by
the Company, provide proper evidence satisfactory to the Company of such
person's authority to so act.
2
<PAGE>
Please print name(s) and address(es)
Name(s): _____________________________________________________________________
_____________________________________________________________________
Capacity: _____________________________________________________________________
Address(es): __________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, government securities broker or
government securities dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a
savings association that is a participant in a Securities Transfer Association
(each of the foregoing being referred to as an "Eligible Institution"), hereby
guarantees to deliver to the Exchange Agent, at one of its addresses set forth
above, either the Outstanding Debt tendered hereby in proper form for transfer,
or confirmation of the book-entry transfer of such Outstanding Debt to the
Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to
the procedures for book-entry transfer set forth in the Prospectus, in either
case together with one or more properly completed and duly executed Letter(s)
of Transmittal (or facsimile thereof) and any other required documents within
five business days after the Expiration Date.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal (or facsimile thereof) and the Outstanding Debt tendered hereby to
the Exchange Agent within the time period set forth above and that failure to
do so could result in a financial loss to the undersigned.
_____________________________________ _____________________________________
Name of Firm Authorized Signature
_____________________________________ _____________________________________
Address Title
_____________________________________ _____________________________________
Zip Code Date
Telephone Number (with U.S. area code or international prefix): _______________
(Please Type or Print)
NOTE: DO NOT SEND CERTIFICATES FOR OUTSTANDING DEBT WITH THIS FORM.
CERTIFICATES FOR OUTSTANDING DEBT SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
3
<PAGE>
Exhibit 99.3
Cybernet Internet Services International, Inc.
Instruction to Registered Holder and/or Depository
Trust Company Participant from Beneficial Owner
for
Offer to Exchange its
14.0% Senior Notes due 2009
which have been registered under the Securities Act of 1933, as amended,
for any and all of its outstanding
14.0% Senior Notes due 2009
that were issued and sold in a transaction
exempt from registration under the
Securities Act
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON NOVEMBER 8, 1999, UNLESS THE OFFER IS EXTENDED. TENDERS MAY
BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
To Registered Holder and/or Depository Trust Company Participant:
The undersigned hereby acknowledges receipt of the Prospectus dated October
7, 1999 (the "Prospectus") of Cybernet Internet Services International, Inc., a
Delaware corporation (the "Company"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Company's offer (the "Exchange Offer") to exchange its 14.0% Senior Notes due
2009 (the "Exchange Debt"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for all of its outstanding 14.0%
Senior Notes due 2009 (the "Outstanding Debt"). Capitalized terms used but not
defined herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or Depository Trust Company
Participant, as to the action to be taken by you relating to the Exchange Offer
with respect to the Outstanding Debt held by you for the account of the
undersigned.
The aggregate face amount of the Outstanding Debt held by you for the account
of the undersigned is (FILL IN AMOUNT):
$ of the 14.0% Senior Notes due 2009.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[_] To TENDER the following Outstanding Debt held by you for the
amount of the undersigned (INSERT PRINCIPAL AMOUNT OF
OUTSTANDING DEBT TO BE TENDERED (IF LESS THAN ALL)):
$
[_]NOT to TENDER any Outstanding Debt held by you for the account of
the undersigned.
If the undersigned instructs you to tender the Outstanding Debt held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations, that
(i) the undersigned is not an "affiliate" of the Company, (ii) any Exchange
Debt to be received by the undersigned is being acquired in the ordinary course
of its business, (iii) the undersigned has no arrangement or understanding with
any person to participate in a distribution
<PAGE>
(within the meaning of the Securities Act) of Exchange Debt to be received in
the Exchange Offer, and (iv) if the undersigned is not a broker-dealer, the
undersigned is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such Exchange Debt. The Company
may require the undersigned, as a condition to the undersigned's eligibility to
participate in the Exchange Offer, to furnish to the Company (or an agent
thereof) in writing information as to the number of "beneficial owners" within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, on behalf of whom the undersigned holds the Outstanding Debt to be
exchanged in the Exchange Offer. If the undersigned is a broker-dealer that
will receive Exchange Debt for its own account in exchange for Outstanding
Debt, it represents that the Outstanding Debt to be exchanged for Exchange Debt
was acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in connection
with any resale of such Exchange Debt; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
SIGN HERE
- --------------------------------------------------------------------------------
Name of beneficial owner(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s) (please print)
- --------------------------------------------------------------------------------
(Address)
- --------------------------------------------------------------------------------
(Telephone Number)
- --------------------------------------------------------------------------------
(Taxpayer Identification or Social Security Number)
- --------------------------------------------------------------------------------
Date
2
