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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. __________
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CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 51-0384117
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
STEFAN - GEORGE - RING 19-23
81929 MUNICH, GERMANY
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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49-89-993-150
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001
PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting common equity held by non-
affiliates of the registrant on December 28, 1999, based upon the closing price
of the Common Stock on The Nasdaq OTC Bulletin Board for such date, was
approximately $298,047,140. The number of outstanding shares of the registrant's
Common Stock as of December 28, 1999, was approximately 22,708,354 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of (a) the Registrant's Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated by reference in Part III hereof, and (b) the
Form S-1 declared effective on December 2, 1998, located under Securities and
Exchange Commission File No. 333-63755 are incorporated by reference in Part IV
hereof.
The Index of Exhibits filed with this Report begins on page 39.
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TABLE OF CONTENTS
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Page
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PART I................................................................................................................... 1
ITEM 1. BUSINESS....................................................................................................... 1
ITEM 2. PROPERTIES..................................................................................................... 17
ITEM 3. LEGAL PROCEEDINGS.............................................................................................. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS............................................................ 18
PART II.................................................................................................................. 18
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................... 18
ITEM 6. SELECTED FINANCIAL DATA........................................................................................ 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................................... 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................... 31
ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ELECTED FINANCIAL DATA.. 32
PART III................................................................................................................. 32
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................................. 32
ITEM 11. EXECUTIVE COMPENSATION......................................................................................... 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................. 33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................. 33
PART IV.................................................................................................................. 33
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............................................... 33
SIGNATURES.............................................................................................................. 37
INDEX TO FINANCIAL STATEMENTS........................................................................................... F-1
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Part I
ITEM 1. 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. The terms "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. IT Services, a leading
German computer magazine has 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 OpenShop,
Oracle, Intel, Teldefax, InfoAG, Cisco 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.
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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 and voice connectivity through
dedicated lines at 56 directly owned points of presence or "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. 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:
. licenses to offer voice telephone services in Germany, Austria, Italy
and Switzerland;
. up to eight carrier grade digital circuit switches;
. a billing system capable of capturing the necessary data and generating
invoices to our customers; and
. interconnection agreements with incumbent operators and other
telecommunications carriers.
In Germany, we have:
. obtained a license to offer voice telephone services in the entire
country and a license to operate a telecommunication infrastructure;
. installed 2 Nortel DMS-100 switches and ordered another 1;
. installed the Kenan billing system; and
. entered into an interconnection agreement with Deutsche Telecom.
In order to enable us to begin offering voice telephone service before our own
switched voice network begins operating fully, we have entered into an interim
agreement with a third-party carrier.
In Austria we have obtained a license to provide voice services and to
operate a telecommunications infrastructure. Interconnection discussions have
commenced. We have ordered 1 Nortel DMS-100 switch and we expect to complete its
installation in Vienna by the end of 2000.
In Switzerland, we have begun the process of obtaining a telecommunications
license and should receive it within the coming weeks. We have ordered 1 Nortel
DMS-100 switch. Switch implementation will commence shortly and should be fully
operational by the end of the third quarter of 2000.
In Italy, we hold a license to provide voice services throughout the entire
country and a license to operate a network. We have also entered into an
interconnection agreement with Telecom Italia. Switches in Rome and Milan are
operational, and we expect to have our remaining switches operational by the end
of the first quarter of 2000.
We have increased our revenues from $0.3 million in 1996 to $ 23.2 million in
1999. As of December 31, 1999, we provided services to approximately 10,600
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,
News, Nokia Italia, ERG, Avis, Ferrovie dello Stato (Italian Railways) and the
Italian Parliament. We also have approximately 39,000 residential customers
primarily in Italy.
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. Bernd Buchholz, our Executive Vice
President for Sales and Marketing, was previously with Esprit Telecom, Novell
and Symantec. Robert Eckert, our Chief Financial Officer, was previously with
Netsource A/S, Swisscom, and General Electric (USA). 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 many of the key managers in our acquisitions.
2
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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. 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 also 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>
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Europe United States
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1997 2002E 1995 1996 1997 2002E
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<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>
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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>
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Connectivity Hosting and VPN
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Anticipated Anticipated
1997 2000E Change 1997 2000E Change
($ in millions) ($ in millions) (%) per annum ($ in millions) ($ in millions) (%) per annum
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<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%
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Total................. 919 2,619 41.8% 76 722 111.8%
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(*) Other includes Austria, Belgium, Ireland, Norway, Portugal and Switzerland.
Source: Datamonitor.
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:
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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, 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 a 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 Our 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
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:
(1)maximize revenues by offering total communications services, including
broad band and voice services;
(2)achieve the highest levels of service quality and reliability; and
(3)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 six large-scale data centers of up to 3,000 square
meters and five smaller data centers of up to 500 square meters to enhance
our co-location and housing service offering;
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. installing eight carrier grade digital circuit switches 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.
Accelerate Growth in Europe Through Targeted Acquisitions. 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 our dial-in service allows customers to dial
into one nation-wide number to access the Internet at local telephone rates.
Our dial-in services in Austria utilize seven dial-in access nodes, each of
which has its own dial-in number. Currently, 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
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<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>
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Voice Services
We offer 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.
In Italy, we offer ALL IN ONE, an all-inclusive solution which combines data
transmission, Internet access and voice-over IP. This is an ideal platform for
building VPNs.
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.
Direct Sales. At December 31, 1999, our direct sales force consisted of 119
sales representatives located in 19 offices in 17 cities, 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.
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
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raise the awareness and visibility of the Cybernet name in our target markets.
We present ourselves as "The Communication People," providing connectivity,
value-added solutions and superior customer service.
Technology and Network Operations
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 15 POPs in Germany,
23 POPs in Italy, 6 POPs in Austria and 10 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 GTS. 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 480 customers
using dedicated line access. We believe our network is recognized as one of
Germany's most extensive and highest quality Internet networks. We expect to
expand our network to include POPs in additional cities in Germany, and
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, our 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, our BELT system 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.
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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, Austria, Italy and Switzerland.
Our main peering points are in Frankfurt, Munich, Milan, Rome, 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. 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. 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, Rome and Milan. Our main
data center in Munich has a capacity of 330 square meters for co-location and
230 square meters for electronic commerce. We intend to establish additional
data centers in Hamburg, Vienna, Trento, Padua, and Zurich. These data centers
will be co-located with certain of our IP nodes (POPs) and switching facilities.
We have already signed leases for the facilities in Hamburg, Frankfurt, Trento,
Milan, Rome and Munich. Each of these facilities will be between 300 and
approximately 2,000 square meters in size. We intend to secure an additional
1000 square meters of space at our Milan data center. 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 have added digital circuit switching capabilities to our network. Until we
finalize the installation of our switches and negotiate interconnection
agreements, we are 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. Cybernet
Italy has a telephony license to offer voice services throughout Italy and has
entered into an interconnection agreement with Telecom Italia. In Austria we
have received a national license to offer switched services and we have applied
for a similar license in Switzerland. We have started the process of entering
into interconnection agreements in Switzerland and Austria. We have installed
an integrated billing system through which we expect to be able to provide a
single bill to our German customers for voice 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.
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<PAGE>
Customers
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, 1999.
* Information Technology * Finance
Hewlett-Packard Julius Bar
Microsoft Austria AXA Nordstern Colonia
CompuNet HypoVereinsbank
Cyberlab Interactive BMW Leasing
Hogatex Commerzbank
Info AG GE Capital Finance
InstallShield Software VR--Leasing
Centro Informatica Raiffeisen
Prism Software Engineering
CompuServe Interactive Service * Government
Internet Consulting Federal Y2K Office
Swissdata Regulierungsbehoerde fur
PrimaCom Telekommunikation und Post
Bundesdruckerei
* Travel and Tourism Ministerium fur Wissenschaft
Frosch Touristik Stadtwerke Karlsruhe
START AMADEUS
START Media Plus * Media and Advertising
Lauda Air Finanzen-Verlag
Media Consulting
* Retail News Magazine
Eddie Bauer ORF Modern Times O Werbung
F.W. Woolworth Co.
Suzuki Auto * Manufacturing
Tengelmann Bayer
Wrigley Daimler Chrysler Aerospace
Zuegg Hugo Matthaes Druckerei
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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<PAGE>
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 and we are still experiencing some
problems with implementation. 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. 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 seven 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% and in 1999 we acquired the
remaining 34% 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. We have combined Eclipse and Flashnet into a single operation
which we call Cybernet Italy.
. Novento. In October 1999, we acquired 51% and in December we acquired
the remaining 49% of Novento Telecom AG and its sister organization,
Multicall Telefonmarketing AG, which are German direct marketing
organizations for communications services through which we expanded our
sales capabilities and acquired additional sales and marketing
expertise.
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.
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<PAGE>
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.
Telecommunications carriers
Many telecommunications carriers are large organizations and do not provide
Internet services as their main product. With regard to Internet services, 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.
In offering voice services, we 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.
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Intellectual Property Rights
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 and
received a trademark registration for the name "Cybernet" used in conjunction
with our logo. We have also applied for, but have not yet received 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 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:
(1)a wide range of high-quality, telecommunications services to private
individuals and businesses;
(2)reliable services to the entire population at affordable prices;
(3)the absence of interference with personal and intellectual property
rights in telecommunications traffic; and
(4)effective competition in the provision of telecommunications services
(5)access to the dominant operator's network on non-discriminatory
terms.
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 service obligations, control
network access and
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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 also
obtained a license to provide public telephony service and to operate our own
infrastructure in Austria and have applied for a similar license in
Switzerland. In Italy, we have 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.
In the switched voice telephony market, our ability to provide viable
services depends 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 have entered into interconnection
agreements with Deutsche Telekom in Germany and Telecom Italia in Italy. We are
negotiating for a similar agreement in Austria. We 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 is 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.
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
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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.
Employees
At the end of December 1999, we had a total of approximately 426 employees
organized as follows: 145 in sales and marketing, 198 in technical and
operational personnel and 83 in administration. There are no collective
bargaining agreements in effect. We believe that relations with our employees
are good.
Item 2. Properties
We lease the real estate where our business offices and certain nodes
containing servers, routers and other equipment are located. Our largest
leasehold property is our main office in Munich with approximately 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 and Vienna.
We believe that none of these leases is critical to operations and that
relocation of any of the leased premises would be feasible on acceptable terms,
if necessary.
We lease dedicated telephone lines from telecommunications carriers and
resellers. Assets relating to our operations, including servers and routers,
are leased or owned.
Item 3. Legal Proceedings
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 involved in several other legal proceedings, none of which we believe
to be material and if adversely determined, we believe none would have a
material adverse effect upon our business, financial condition or results of
operations.
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Item 4. Submission of Matters To a Vote of Security-Holders
At a special meeting held on November 16, 1998, shareholder action was
taken by the sole existing shareholder of the Company to approve the merger with
Cybernet Internet Services International, Inc., a Utah corporation, and the
adoption of our 1998 Stock Incentive Plan and 1998 Outside Director Stock Option
Plan.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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 March 13, 2000
was $13.00 per share and (Euro)14.30 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.
Prices on the OTC Bulletin are reported in The NASDAQ Trading and Marketing
Services' Trading Activity Reports, Trade and Quote Summary. Prices on the
Neuer Markt are reported for trades on the electronic trading system of
Deutsche Borse A.G. 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
October....................................... $16.000 $13.750
November...................................... $15,500 $8.1250
December...................................... $12.000 $8.5075
<CAPTION>
High Low
2000 ------- -------
<S> <C> <C>
January....................................... $13.750 $ 8.750
February...................................... $17.500 $11.000
- --------
(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
October....................................... (Euro)15.850 (Euro)13.300
November...................................... (Euro)15.200 (Euro)7.400
December...................................... (Euro)11.400 (Euro)8.900
<CAPTION>
High Low
2000 ------------ ------------
<S> <C> <C>
January.......................................(Euro)12.100 (Euro) 8.810
February......................................(Euro 18.500 (Euro)10.600
</TABLE>
18
<PAGE>
COMMON STOCK DIVIDEND POLICY
We have never declared or paid cash dividends on our Common Stock. We
currently intend to retain all of our earnings, if any, for use in our business
and do not anticipate paying any cash dividends on our common stock in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 1999, we sold shares of Common Stock as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Securities Sold Purchasers Consideration Exemption
- ---------------------------------
Date Number of Shares
Class of Stock
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 25,000 Jurg Heim 51% of the shares of Section 4(2)
1999 Common Stock Marco Samek Sunweb Internet Services AG
(in connection with the Sunweb
acquisition)
- -------------------------------------------------------------------------------------------------------------
June 301,290 All the shares of Section 4(2)
1999 Common Stock Flashnet S.p.A.(in connection
with Flashnet acquisition)
- -------------------------------------------------------------------------------------------------------------
October 39,412 51% of the shares of Novento Section 4(2)
1999 Common Stock Bernd Buchholz Telecom AG (in connection
with Novento acquisition)
- -------------------------------------------------------------------------------------------------------------
October 136,402 34% of the shares of Section 4(2)
1999 Common Stock Eclipse S.p.A.
(in connection with
Eclipse acquisition)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated Statement of Operations data and Balance Sheet data
as of and for the years ended December 31, 1997, 1998 and 1999 set forth
below has been derived from the financial statements of the Company, which have
been audited by Schitag Ernst & Young AG, independent auditors. Business
acquisitions made by the Company during the periods for which selected financial
data is presented below materially affect the comparison of such data from
period to period. The selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this document.
19
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1997 1998 1999
(in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue
Internet Projects........ $ 1,598 $ 5,139 $ 5,663
Network Services......... 716 3,495 16,635
------- -------- --------
Total revenue................ 2,314 8,634 22,298
Cost of Revenues
Internet Projects........ 1,495 4,699 5,110
Network Services......... 866 4,067 17,148
Depreciation and
Amortization......... 171 1,674 3,804
------- -------- --------
Total cost of revenues....... 2,532 10,440 26,062
Gross profit (loss)...... (218) (1,806) (3,764)
General and administrative
expenses............. 482 1,576 18,844
Marketing expenses....... 1,188 3,844 12,238
Research and development. 280 2,941 4,304
Depreciation and
amortization......... 116 880 8,322
------- -------- --------
2,066 9,241 43,708
Interest expense, net.... 39 43 (18,547)
------- -------- --------
Loss before taxes and
minority interest.... (2,323) (11,090) (66,019)
Income tax benefit....... 1,339 6,173 14,384
Minority interest........ ----- 145 100
Net loss................. $ (984) $ (4,772) $(51,535)
======= ======== ========
Basic and diluted loss
per share............ $ (.12) $ (.30) $ (2.59)
Balance Sheet Data:
Working capital.......... $ 891 $ 37,751 $102,724
Total assets............. 12,617 79,445 287,800
Long-term debt(1)........ 42 1,383 180,809
Total stockholders'
equity............... 8,908 67,359 68,759
</TABLE>
- ----------------------------------
(1) Including lease obligations
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview:
The following table sets forth, the items of the consolidated statements of loss
for the years ended December 31st, 1997, 1998 and 1999, expressed as a
percentage of total revenues.
<TABLE>
<CAPTION>
For year ended December 31
------------------------------
1997 1998 1999
--------- --------- --------
<S> <C> <C> <C>
Revenue 69.1% 59.5% 25.4%
Internet Projects................................................................
Network Services................................................................. 30.9% 40.5% 74.6%
Total revenues........................................................................ 100.0% 100.0% 100.0%
Cost of revenues:
Internet Projects................................................................ 64.6% 54.4% 22.9%
Network Services................................................................. 37.4% 47.1% 76.9%
Depreciation and amortization.................................................... 7.4% 19.4% 17.1%
Total cost of revenues................................................................ 109.4% 120.9% 116.9%
Gross margin (loss)................................................................... -9.4% -20.9% -16.9%
20.8% 18.3% 84.5%
General and administrative expenses...............................................
Sales and Marketing expenses...................................................... 51.4% 44.5% 54.9%
Research and development.......................................................... 12.1% 34.1% 19.3%
Depreciation and amortization..................................................... 5.0% 10.2% 37.3%
Total operating expenses.............................................................. 89.3% 107.0% 196.0%
Operating loss........................................................................ -98.7% -128.0% -212.9%
Interest expense...................................................................... 1.7% 2.3% 80.9%
Interest income....................................................................... 0.0% 1.8% 18.6%
Realized foreign currency translation losses.......................................... 0.0% 0.0% -20.8%
Loss before taxes and minority interest............................................... -100.4% -128.5% -296.1%
Income tax benefit.................................................................... 57.9% 71.5% 64.5%
Net loss before minority interest..................................................... -42.5% -57.0% -231.6%
Minority interest..................................................................... 0.0% 1.7% 0.5%
Net loss.............................................................................. -42.5% -55.3% -231.1%
</TABLE>
Year Ended December 31, 1999 As Compared To The Year Ended December 31, 1998
Results of Operations
Total revenues increased by 158.3% from $8,634,000 in 1998 to $22,298,000 in
1999. Internet Project revenues increased 10.2% from $5,139,000 in 1998 to
$5,663,000 in 1999 and represented 59.5% and 25.4% of our total revenues in 1998
and 1999, respectively. Network Services revenues increased by 376.0% from
$3,495,000 in 1998 to $16,635,000 in 1999. In 1999, Network Services
represented 74.6% of total revenues as compared to 40.5% in 1998.
The increase in revenue from Network Services is partially a result of an
expansion of our customer base, which provides us with a stream of recurring
revenues. Although in 1999 the Company has
21
<PAGE>
focused primarily on building these recurring revenues from Network Services,
building relationships with customers through Internet Projects remains a
continuing strategy. In addition, in 1999 Network Service revenues include a
full year of Vianet revenues, nine months of Sunweb revenues, six months of
Flashnet revenues and three months of Novento revenues. Vianet and Novento
derive all revenues from Network Service sales. Excluding revenues from these
acquisitions, Network Service revenues would have increased 134% from $3,495,000
in 1998 to $7,811,000 in 1999.
The increase in Internet Project revenues from 1998 to 1999 is mainly a result
of consolidating the Internet Project revenues of $706,000 from Sunweb (nine
months) and $256,000 from Flashnet (six months). Excluding these acquisitions,
Internet Project revenues would have decreased 8.5% from $5,139,000 to
$4,701,000. This decrease is mostly the result of the Company being more
selective when taking on Internet Projects in order to apply its scarce human
resources to the projects most likely to generate long-term relationships and
generate revenues from network-based services.
We derived $12,080,000 or 54.2% of total revenues from our operations in Germany
compared with $7,693,000 or 89.1% in 1998, and $5,499,000 or 24.7% of total
revenues from our operations in Italy compared with $941,000 or 10.9% in 1998.
We derived $3,760,000 or 16.9% of total revenues from our operations in Austria
compared with none in 1998, and $959,000 or 4.2 % of total revenues from our
operations in Switzerland compared with none in 1998.
In Germany, the largest customer provides 7% of the revenues derived from that
market, in Italy 5% is derived from largest customer, in Austria 7% from the
largest customer and in Switzerland the largest customer provides 32% of our
revenues in that market.
Costs of Revenues
Total costs of revenues increased 149.6% from $10,440,000 in 1998 to $26,062,000
in 1999. Costs of revenues as a percentage of revenues decreased from 120.9% in
1998 to 116.9% in 1999. Cost of revenues mainly consists of (i)
telecommunications expenses, (ii) technical and operations personnel costs,
(iii) the cost of hardware and software sold, (iv) amortization of product
development costs, (v) depreciation of network facilities and equipment, and
(vi) consulting expenses in the area of network and software development.
Telecommunications expenses mainly represent the cost of transporting Internet
traffic from our customer's location through a local telecommunications carrier
to one of our access nodes and the cost of leasing lines to interconnect our
backbone nodes. Technical and operational personnel included in cost of revenues
are those individuals involved in the planning, building and management of our
network and the provision of services over this network. We had 198 technical
and operations personnel on December 31, 1999 and approximately 99 such
personnel at the end of 1998.
The cost of our Internet Projects revenues increased by 8,8% from $4,699,000 in
1998 to $5,110,000 in 1999. This increase primarily resulted from increased
purchases of hardware and software that was installed at customer sites, and the
costs of additional internal and external personnel hired to complete these
projects. Cost of Internet Projects as a percentage of related revenues
remained relatively stabile at 91.4% in 1998 and 90.2% in 1999. Although the
Company incurred costs in 1999 in developing proposals for some projects it did
not win, because the Company was generally more selective in taking on projects
it was able to offset these costs and keep margins at the same level as 1998.
The cost of our Network Services revenues increased 321.6% from $4,067,000 in
1998 to $17,148,000 in 1999. This increase primarily consisted of additional
leased line expenses related to
22
<PAGE>
the expansion of our network backbone, additional leased lines to our customers'
premises and a large increase in network personnel. Cost of Network Services as
a percentage of related revenues decreased from 116.4% in 1998 to 103.1% in
1999. This decrease is primarily attributable to a decline in personnel costs as
a percentage of revenues and a reduction in purchased Internet Services due to
the development of our own network. These decreases were partially offset by
additional leased line expenses.
Depreciation and amortization included in the Costs of Revenues, increased from
$1,674,000 in 1998 to $3,804,000 in 1999 as a result of investments in our own
network infrastructure and the supporting systems, including a billing system.
We have capitalized certain costs associated with designing the network,
including related software.
General and Administrative Expenses
General and administrative expenses increased 1096% from $1,576,000 in 1998 to
$18,844,000 in 1999. General and administrative expenses consist principally of
salaries and other personnel costs for our administrative staff, office rent and
depreciation of office equipment. The increase in our general and administrative
expenses reflects the costs of building a corporate infrastructure to support
our anticipated growth and the addition of general and administrative expenses
of companies acquired in 1997, 1998 and 1999. As a percentage of revenues,
general and administrative expenses increased from 18.3% in1998 to 84.5% in
1999.
General and Administrative staff increased from approximately 32 personnel at
the end of 1998 to 83 at the end of 1999. The increases were mostly in the areas
of Finance and Accounting, Human Resource management, IT, Executive Management
and other support functions. The Company has taken measures in the fourth
quarter of 1999 to reduce the number of staff in non-essential support
functions. The favorable impact of these reductions will not be realized until
the first quarter of 2000, since the Company has had to carry the related cost
of dismissed personnel through the end of 1999.
Additionally there was a significant increase in General and Administrative
expenses related to the build-up of an international executive management team
and supporting structures. Within this area there were also large increases in
legal, accounting and other external advisory costs associated with the
financing activities, acquisitions and alliances in 1999.
Excluding the general and administrative expenses in the companies acquired in
1999, G&A expenses would have increased 945% from $1,576,000 in 1998 to
$16,460,000 in 1999.
Sales and Marketing Expenses
Sales and marketing expenses increased by 218% from $3,844,000 in 1998 to
$12,238,000 in 1999. Sales and marketing expenses consist principally of
salaries of our sales force and marketing personnel and advertising and
communication expenditures. Higher sales and marketing expenses reflect our
larger sales and marketing teams, a company-wide increase in advertising and
communication expenses, and a major marketing campaign undertaken in the fourth
quarter of 1999 to launch the Cybernet brand in Italy. Sales and marketing
staff increased from approximately 83 on December 31, 1998 to 145 as of December
31, 1999. As a percentage of revenues, our sales and marketing expenses
increased from 44.5% in 1998 to 54.9% in 1999.
Excluding the sales and marketing expenses in the companies acquired in 1999,
sales and marketing expenses increased 151% from $3,844,000 in 1998 to
$9,660,000 in 1999.
23
<PAGE>
Research and Development
Research and development expenses increased 46.4% from $2,941,000 in 1998 to
$4,304,000 in 1999. Research and development expenses consist principally of
personnel costs of employees working on product development, consulting costs
and certain overhead items. The personnel utilized for this purpose include our
own marketing force and the portion of their time which was devoted to product
development is included in research and development. As a percentage of
revenues, research and development decreased from 34.1% in 1998 to 19.3% in
1999. Most of the research and development expenses have been incurred in our
German operations and the consolidation of acquired companies in 1999 only
had a minor impact on the growth in expenses in this area.
Depreciation and Amortization
Depreciation and amortization expenses increased from $880,000 in 1998 to
$8,322,000 in 1999. This increase reflects increased depreciation of capital
expenditures for property and equipment purchased to build the corporate
infrastructure necessary to support our anticipated growth, and increased
amortization of goodwill related to our 1997, 1998 and 1999 acquisitions.
Goodwill represents the excess of the purchase price of companies we purchased
over the fair value of the tangible assets of those companies. Goodwill is
amortized over 5 - 10 years.
Interest Income and Expense
Interest expense increased from $197,000 in 1998 to $ 18,039,000 in 1999 as a
result of the debt issued in 1999. Interest income increased significantly from
$154,000 in 1998 to $4,138,000 in 1999 as a result of interest earned on the
proceeds of these offerings before the proceeds are utilized in our business. In
1999 we incurred net foreign exchange losses of $4,646,000 as our borrowings are
denominated in US dollars but our operational currency is the Deutsche Mark.
Income Taxes
We recorded income tax benefits of $6,172,000 in 1998 and $14,384,000 in 1999,
arising principally from operating losses. Whilst the group has additional
operating losses, a valuation allowance has been made against some of these
losses to reflect the estimated amount which may not be realized. The majority
of the operating losses and the associated valuation allowance is associated
with operations subject to German tax, and under the current German tax code,
these net operating losses may be carried forward indefinitely and used to
offset our future taxable earnings.
Year Ended December 31, 1998 As Compared To The Year Ended December 31, 1997
Results of Operations
Revenues
Total revenues increased by 273.1% from $2,314,000 in 1997 to $8,634,000 in
1998. Internet Project revenues increased by 221.6% from $1,598,000 in 1997 to
$5,139,000 in 1998 and represented 69.1% and 59.5% of our total revenues in 1997
and 1998, respectively. Network Services revenues increased by 388.1% from
$716,000 in 1997 to $3,495,000 in 1998. In 1998,
24
<PAGE>
Network Services represented 40.5% of total revenues as compared to 30.9% in
1997. The primary reason for this shift is that our recurring revenues grow as
we expand our customer base. We expect this trend to continue.
Revenues from existing operations, accounted for 34.1% of Internet Project
revenues in 1998 compared with 57.1% in 1997. Revenues from existing operations
accounted for 23.7% of the growth in Internet Projects from year to year. This
growth is attributable to new customers and additional sales to existing
customers.
Revenues from acquired companies represented 65.9% of Internet Project revenues
in 1998 compared with 42.9% in 1997, and accounted for 76.3% of the growth in
Internet Projects revenues from year to year. In 1998 these revenues include a
full year of operations of Artwise and Eclipse and three months of operations of
Open:Net.
Network Services revenues increased by 387.9% from $716,000 in 1997 to
$3,494,000 in 1998 and represented 30.9% and 40.5% of total revenues in 1997 and
1998, respectively. Revenues from existing operations represented 78.3% of
Network Services revenues in 1998 compared with 100.0% in 1997. These revenues
accounted for 72.7% of the growth in Network Services revenues from year to
year.
Revenues from acquired companies represented 21.7% of Network Services revenues
in 1998. Acquired companies did not contribute any Network Services revenues in
1997. Revenues from acquired companies accounted for 27.3% of the growth in
Network Services revenues from year to year. In 1998 these revenues include a
full year of operations of Artwise and Eclipse and three month of operations of
Open:Net.
We derived $7,693,000 or 89.1% of total revenues in 1998 from our operations in
Germany and $941,000 or 10.9% of total revenues from our operations in Italy.
On December 28, 1998, we acquired Vianet, our Austrian subsidiary, which had
revenues of approximately $3.1 million in 1998. Future operating results will
include Vianet revenues in Austria and revenues from Sunweb, a Swiss company 51%
of which we have agreed to acquire.
Our total number of customers increased by 74.4% to approximately 7,400 at
December 31, 1998 from 4,300 at December 31, 1997. No single customer accounted
for more than 3% of our revenues in 1998.
Costs of Revenues
Total costs of revenues increased 312.4% from $2,532,000 in 1997 to $10,440,000
in 1998. Costs of revenues as a percentage of revenues increased from 109.4% in
1997 to 120.9% in 1998. Cost of revenues mainly consists of (i)
telecommunications expenses, (ii) personnel costs, (iii) cost of hardware and
software sold, (iv) amortization of product development costs, and (v) service
and consulting expenses. Telecommunications expenses mainly represent the cost
of transporting Internet traffic from our customer's location through a local
telecommunications carrier to one of our access nodes and the cost of leasing
lines to interconnect our backbone nodes.
The cost of our Internet Projects revenues increased by 214.2% from $1,495,000
in 1997 to $4,699,000 in 1998. This increase primarily resulted from increased
purchases of hardware and software, that was installed at customer sites, and
the costs of additional personnel. Cost of Internet Projects as a percentage of
related revenues decreased from 93.5% in 1997 to 91.4% in 1998. This
25
<PAGE>
decrease is primarily attributable to a reduction in training and seminar
expenditures, partially offset by an increase in purchases of hardware and
software.
The cost of our Network Services revenues increased by 370.0% from $866,000 in
1997 to $4,067,000 in 1998. This increase primarily consisted of additional
leased line expenses. Cost of Network Services as a percentage of related
revenues decreased from 120.8% in 1997 to 116.4% in 1998. This decrease is
primarily attributable to a decline in personnel costs as a percentage of
revenues and a reduction in purchased Internet Services due to the development
of our own network. These decreases were partially offset by additional leased
line expenses.
Depreciation and amortization, included in Costs of Revenues, increased from
$171,000 in 1997 to $1,674,000 in 1998 as a result of new investments in product
development from year to year. We have capitalized certain costs associated
with designing the network, including related software. We have also
capitalized investments made in building network capacity, including related
personnel and consulting costs. These costs appear in our balance sheet under
product development cost and are amortized over a period not exceeding four
years.
General and Administrative Expenses
General and administrative expenses increased 227.1% from $482,000 in 1997 to
$1,576,000 in 1998. General and administrative expenses consist principally of
salaries and other personnel costs for our administrative staff, office rent and
depreciation of office equipment. The increase in our general and administrative
expenses reflects the costs of building a corporate infrastructure to support
our anticipated growth and the addition of general and administrative expenses
of companies acquired in 1997 and 1998. As a percentage of revenues, general and
administrative expenses decreased from 20.8% in 1997 to 18.3% in 1998.
Marketing Expenses
Marketing expenses increased by 223.4% from $1,189,000 in 1997 to $3,844,000 in
1998. Marketing expenses consist principally of salaries of our sales force and
advertising and communication expenditures. Higher marketing expenses reflect
an increase in salary expense resulting from our larger sales force and an
increase in advertising and communication expenses reflecting our drive to
improve public awareness of our brand. As a percentage of revenues, our
marketing expenses decreased from 51.4% in 1997 to 44.5% in 1998.
Research and Development
Research and development expenses increased 950.4% from $280,000 in 1997 to
$2,941,000 in 1998. Research and development expenses consist principally of
personnel costs of employees working on product development, consulting costs
and certain overhead items. The development of our modular products and the
related pricing research which we conducted in 1998 is reflected in the higher
personnel costs included in research and development. The personnel utilized
for this purpose include our own marketing force and the portion of their time
which was devoted to product development is included in research and
development. We also incurred consulting expenses in 1998 while researching the
viability of certain telecommunications services that we plan to offer in the
future. As a percentage of revenues, research and development increased from
12.1% in 1997 to 34.1% in 1998.
Depreciation and Amortization
26
<PAGE>
Depreciation and amortization expense, increased from $116,000 in 1997 to
$880,000 in 1998. This increase reflects increased depreciation of capital
expenditures for property and equipment purchased to build the corporate
infrastructure necessary to support our anticipated growth, and increased
amortization of goodwill related to our 1997 and 1998 acquisitions.
Goodwill represents the excess of the purchase price of companies we purchased
over the fair value of the tangible assets of those companies. Goodwill is
amortized over 10 years.
Interest Income and Expense
Interest expense increased 392.7% from $40,000 in 1997 to $197,000 in 1998 as a
result of new capital lease obligations which we undertook in 1998 to finance
acquisitions of computer equipment. Interest income in 1998 was earned on
excess cash balances resulting from the proceeds of our 1998 equity offerings.
Income Taxes
We recorded income tax benefits of $1,339,000 in 1997 and $6,172,000 in 1998,
arising principally from incurred operating losses. Under the current German
tax code, these net operating losses may be carried forward indefinitely and
used to offset our future taxable earnings.
Year Ended December 31, 1997 As Compared To The Year Ended December 31, 1996
Results of Operations
Revenues
Total revenues increased by 652.1% from $308,000 in 1996 to $2,314,000 in 1997,
principally because 1997 was a full year of operation while 1996 involved
substantial start up and initial marketing activities.
Revenues from Internet Projects represented 70.6% and 69.1% of total revenues in
1996 and 1997, respectively, and increased by 635.3% from $217,000 in 1996 to
$1,598,000 in 1997. Revenues from Network Services represented 29.4% and 30.9%
of total revenues in 1996 and 1997, respectively, and increased by 692.4% from
$90,000 in 1996 to $716,000 in 1997.
Revenues from existing operations represented 57.1% of Internet Project revenues
in 1997 compared with 100.0% in 1996. These revenues accounted for 50.4% of the
growth in Internet Projects revenues from year to year. Revenues from acquired
companies represented 42.9% of Internet Project revenues in 1997. These revenues
accounted for 49.6% of the growth in Internet Projects revenues from year to
year. These revenues include the results of operations of Artwise for four
months in 1997.
Our total number of customers increased by 194.5% in 1997 to 4,300 customers
from 1,460 in 1996. No single customer accounted for more than 7% of our
revenues in 1997.
Costs of Revenues
Total costs of revenues increased 597.2% from $363,000 in 1996 to $2,532,000 in
1997. Costs of
27
<PAGE>
revenues as a percentage of revenues decreased from 118.0% in 1996 to 109.4% in
1997.
The cost of our Internet Projects revenues increased 530.8% from $237,000 in
1996 to $1,495,000 in 1997. This increase primarily resulted from increased
personnel costs, training and seminars, and purchases of software that was
installed at customer sites. Cost of Internet Projects as a percentage of
related revenues decreased from 109.1% in 1996 to 93.6% in 1997. This decrease
is primarily attributable to a reduction of free lance staff costs.
The cost of our Network Services revenues increased by 625.4% from $119,000 in
1996 to $865,000 in 1997. This increase primarily consisted of increased
personnel costs and the cost of additional leased lines. Cost of Network
Services as a percentage of related revenues decreased from 132.0% in 1996 to
120.8% in 1997. This decrease is primarily due to a decline in purchased
Internet services and leased line expenses as a percentage of revenues and was
partially offset by additional personnel costs.
General and Administrative Expenses
General and administrative expenses increased 83.0% from $263,000 to $482,000 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 $165,000 in 1996 to $1,189,000 in
1997. Increases in our marketing expenses are attributable primarily to
increased salaries reflecting our efforts to build a larger sales force and
larger advertising and communication expenses in our drive to improve public
awareness of our brand name. As a percentage of revenues, our marketing
expenses decreased from 53.5% in 1996 to 51.4% in 1997 due to a reduction of
free lance staff costs and merchandising costs. These reductions were partially
offset by higher personnel costs and advertising and communication expenses.
Research and Development
Research and development expenses increased 56.3% from $179,000 in 1996 to
$280,000 in 1997 primarily as a result of increased personnel costs. As a
percentage of revenues, our research and development decreased from 58.2% in
1996 to 12.1% in 1997 due to the growth of our revenues.
Depreciation and Amortization
Depreciation and amortization, increased from $21,000 in 1996 to $116,000 in
1997, reflecting increased capital expenditures in property, plant and
equipment. The increase in goodwill amortization from 1996 to 1997 is due to
goodwill additions generated by the 1997 acquisitions.
Interest Income and Expense
Interest expense increased from $2,000 in 1996 to $40,000 in 1997, principally
due to the higher level of overdrafts and short term borrowings in 1997 compared
to 1996. These overdrafts were
28
<PAGE>
used to fund the Company's working capital requirements.
Income Taxes
We recorded income tax benefits of $402,000 in 1996 and $1,339,000 in 1997,
arising principally from operating losses incurred. Under the current German
tax code, these net operating losses may be carried forward indefinitely and
used to offset our future taxable earnings.
Liquidity and Capital Resources
Since our inception, we have financed our operations and growth primarily from
the proceeds of private and public sales of securities. Total net proceeds of
debt and equity offerings in the four years ended December 31, 1999 amounted to
approximately $293 million, including some $225 million during 1999.
Additionally, in 1998, our subsidiaries financed the acquisition of certain
equipment with capital lease obligations.
Our working capital, defined as the excess of our current assets over our
current liabilities, was $102,724,000 at December 31, 1999 compared with
$37,750,000 at December 31, 1998, and $891,000 at December 31, 1997.
Cash and cash equivalents amounted to $73,213,000 at December 31, 1999 compared
to $42,876,000 at December 31, 1998, and $2,239,000 at December 31, 1997. The
increase in cash and cash equivalents primarily resulted from the proceeds of
our offerage of debt in 1999. The cash is being held partly in Euro, our
principle operating currency, but mainly in US dollars, $61 million. In addition
at December 31, 1999 we had some $58 million of Restricted cash held in escrow,
to meet the first six semi-annual interest payments on the Company's 14% Senior
Notes. This amount is invested in US treasury bonds. Further we had various
short-term investments denominated in Euro's totaling $41.2 million at December
31, 1999.
Operating activities used cash of $38,040,000, $10,335,000 and $1,432,000 in
each of the three years ended December 31, 1999, 1998 and 1997, respectively.
The large increase in cash used in 1999 results from the significant loss before
taxes for the year ended December 31, 1999 since the Company significantly
increased expenditures in building its organizational infrastructure (staff more
than doubled from year-end 1998 to year-end 1999) and since it substantially
increased expenditures in the area of marketing.
Investing activities used cash of $154,776,000 and $9,929,000 and $4,791,000 in
each of the three years ended December 31, 1999, 1998 and 1997, respectively.
The large increase in 1999 results from the business acquisitions in 1999, the
increase in expenditures for property and equipment, together with the purchase
of the short term investments and restricted cash, noted above. Expenditures
for property and equipment consisted principally of purchases of equipment and
investments related to our data centers, Internet backbone, billing system and
other equipment necessary to support our growth.
The Company's capital expenditures increased 300% from $6,034,000 in 1998 to
$24,154,000 in 1999. Capital expenditures by country were $16,761,000 in
Germany, $4,015,000 in Italy and $3,234,000 in Austria and Switzerland.
Financing activities provided cash of, $223,632,000, $60,010,000 and $8,644,000
in each of the three years ended December 31, 1999, 1998 and 1997, respectively.
The large inflow in 1999
29
<PAGE>
results principally from our debt issuance in mid-1999 which generated $225
million in proceeds The inflow 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 that generated $8,070,427 in net
proceeds.
At December 31, 1999 we had available combined cumulative tax loss carryforwards
of approximately $66 million most of which relate to operations subject to
German tax. Under current German tax law, these tax loss carryforwards have no
expiration date. We have provided a valuation allowance against some of these
loss carryforwards, to reflect the estimated amount that may not be realized.
We believe that our cash and cash equivalents will provide adequate liquidity to
fund our normal operating activities over the next twelve months. However, our
plan is to continue to seek additional acquisitions and to enhance our
capabilities in both IP and other communications services through significant
capital expenditures and strategic alliances. These initiatives will be
initially financed from the portion of the proceeds of the 1999 debt issuance
that exceeds our normal operating requirements. Based on our current plan
additional financing will be needed in the first half of 2001 requiring the
offering of additional private or public debt or equity securities. Management
is continuously reviewing options to expand and develop the business, together
with the various options available to finance such activities.
30
<PAGE>
Item 7A. 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 Private Unit Offering in July 1999 and Private 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 Private Unit Offering and the Private
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 and 52% of our revenues in the first
nine months of 1999 were denominated in Deutsche Mark. Another 45% of our
revenues in the first nine months of 1999 were denominated in other European
Monetary Union member currencies. 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 10% 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 10%
decrease in the exchange rate between the United States dollar and the Deutsche
Mark would result in a decrease of our March 31, 1999 net assets of
approximately $1,997,900.
We have not entered into any derivative hedging instruments to reduce the
risk of exchange rate fluctuations.
Item 8. Financial Statements and Supplementary Data
The information required by this item appears beginning on page F-1 of this
report.
31
<PAGE>
Item 9. Changes in, and Disagreements with, Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference to
information to be included under the captions "Election of Directors,"
"Executive Officers" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to
information to be included under the captions "Election of Directors Director
Compensation" and "Compensation Committee Interlocks and Insider Participation,"
"Executive Compensation," and "Compensation Committee Report on Executive
Compensation" in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders.
32
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to
information to be included under the caption "Beneficial Ownership of Common
Stock" in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to
information to be included under the caption "Election of Directors
Compensation Committee Interlocks and Insider Participation" in the Company's
Proxy Statement for the 2000 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a. Documents filed as a part of this report.
1. FINANCIAL STATEMENTS
See Index to Financial Statements on page F-1.
2. FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule of Cybernet
Internet Services International, Inc. is included in Item 14(d) and
presented as a separate section of this Report: Schedule II Valuation and
Qualifying Accounts: page F-19.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
3. EXHIBITS
Listed below are all of the Exhibits filed as part of this report.
Certain Exhibits are incorporated by reference from documents previously
filed by the Company with the Securities and Exchange Commission pursuant
to Rule 12b-32 under the Securities Exchange Act of 1934, as amended.
33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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 (Incorporated by reference to the Form S-4
Registration Statement No. 333-86853 filed September 10, 1999).
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 (Incorporated by reference to the Form S-4 Registration Statement
No. 333-86853 filed September 10, 1999).
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 (Incorporated
by reference to the Form S-4 Registration Statement No. 333-86853 filed
September 10, 1999).
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 (Incorporated by reference to the Form S-4 Registration
Statement No. 333-86853 filed September 10, 1999).
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 (Incorporated by
reference to the Form S-4 Registration Statement No. 333-86853 filed
September 10, 1999).
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).
10.1.1** Amending Agreement Concerning the Sale and Assignment of Interest in
Artwise GmbH Software LoSungen of September 18, 1997 by and among Rolf
Strehle, Gerhard Schonenberger, Cybernet Internet-Dienstleistungen AG
and Cybernet Internet - Beteiligungs GmbH.
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>
34
<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. Hubert 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>
35
<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 (Incorporated by reference to the
Form S-4 Registration Statement No. 333-86853 filed September 10,
1999).
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
(Incorporated by reference to the Form S-4 Registration Statement
No. 333-86853 filed September 10, 1999).
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 (Incorporated by reference to the Form S-4
Registration Statement No. 333-86853 filed September 10, 1999).
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 (Incorporated by reference to the Form S-4
Registration Statement No. 333-86853 filed September 10, 1999).
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 (Incorporated by reference to the Form S-4 Registration
Statement No. 333-86853 filed September 10, 1999).
10.29** Condition Precedent Sale and Transfer of Novento Telecom AG and
Multicall Telefonmarketing AG Stock and Sale and Assignment of
Claims dated December 2, 1999.
10.29.1** Sale and Transfer of Stock of Novento Telecom AG and Multicall
Telefonmarketing AG and Purchase and Assignment of Claims, dated
October 1, 1999.
10.30** Framework Contract for the Performance of Project and Consulting
Services, dated November 19, 1999, by and between Beam GmbH and
Cybernet AG.
10.30.1** Loan and Security Agreement, dated November 10, 1999, by and between
Rolf Strehle, Gerhard Schonenberger and Cybernet Internet -
Dienstleistungen AG.
10.31** Stock Purchase Agreement, dated February 19, 1999, by and between
Jurg Heim, Marco Samek and Cybernet Internet Services International,
Inc.
10.32** Cooperation Software Licensing Agreement, dated December 28, 1999,
by and between Berningshausen & Neben OHG and Cybernet Internet
Services International, Inc.
10.33** Employment Agreement, dated as of November 1, 1999, by and between
Bernd Buchholz and Cybernet Internet Services International, Inc.
21** Subsidiaries.
27.1** Financial Data Schedule
</TABLE>
- --------
** Filed herewith
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CYBERNET INTERNET SERVICES
INTERNATIONAL, INC.
March 30, 2000
/s/ Andreas Eder
By: _________________________________________
Chairman of the Board of Directors,
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Andreas Eder
_________________________________ Chairman of the Board March 30, 2000
Andreas Eder of Directors, President
and Chief Executive Officer
/s/ Tristan Libischer
_________________________________ Director March 30, 2000
Tristan Libischer
/s/ Hubert Besner
_________________________________ Director March 30, 2000
Hubert Besner
/s/ G.W. Norman Wareham
_________________________________ Director March 30, 2000
G.W. Norman Wareham
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert Fratarcangelo
_________________________________ Director and Secretary March 30, 2000
Robert Fratarcangelo
/s/ Robert Eckert Chief Financial Officer
_________________________________ and Treasurer (Principal March 30, 2000
Robert Eckert Financial and Accounting
Officer)
</TABLE>
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
Independent Auditors' Report............................................................................... F- 2
Consolidated Balance Sheets December 31, 1999 and 1998..................................................... F- 3
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997................. F- 4
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997................. F- 5
Consolidated Statements of Shareholders' Equity years ended December 31, 1999, 1998 and 1997............... F- 6
Notes to Consolidated Financial Statements................................................................. F- 7
Independent Accountants' Report............................................................................ F-20
Independent Accountants' Report............................................................................ F-21
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
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, 1999, and 1998, and the related consolidated statements of
operations, cash flows and changes in shareholders' equity for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statements schedule listed in the Index at Item 14(a). These financial
statements and Schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of
Cybernet Italia S.p.A., or Eclipse s.r.l., both wholly owned subsidiaries, which
statements reflect total assets constituting 7% in 1999, and total revenues
constituting 25% in 1999 of the related consolidated totals. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Cybernet Italia S.p.A. and
Eclipse s.r.l. is based solely on the report of the other auditors
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company as of December 31, 1999 and
1998, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Ernst & Young
Deutsche Allgemeine Treuhand AG
/s/ Geoffrey V. Hopper /s/ Ralf Broschulat
Geoffrey V. Hopper Ralf Broschulat
Certified Public Accountant Independent Public Accountant
Munich, Germany
March 29, 2000
F-2
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
----------------- -----------------
( in thousands )
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................................... $42,876 $ 73,213
Short-term investments............................................. 112 41,237
Accounts receivable -- trade, net of allowance for doubtful
accounts of $ 361,000 and $1,192,000 at December 31, 1998 and
1999 respectively................................................. 3,249 9,162
Other receivables.................................................. 1,793 5,052
Restricted investments............................................. 10,091
Prepaid expenses and other assets.................................. 423 2,201
------- --------
Total current assets............................................... 48,453 140,956
Property and equipment, net........................................ 7,970 28,479
Product development costs, net..................................... 5,743 3,096
Goodwill, net...................................................... 6,505 26,240
Deferred income taxes.............................................. 8,166 20,771
Restricted investments............................................. - 48,158
Other assets....................................................... 2,608 20,100
------- --------
TOTAL ASSETS.......................................................... $79,445 $287,800
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Overdrafts and short-term borrowings............................. $ 287 $ 437
Trade accounts payable........................................... 3,346 18,229
Other accrued liabilities........................................ 1,073 15,144
Deferred purchase obligations.................................... 4,483 -
Current portion long term debt and capital lease obligations..... 925 1,728
Accrued personnel costs.......................................... 589 2,694
------- --------
Total current liabilities................................... 10,703 38,232
Long-term debt................................................... 67 178,372
Capital lease obligations........................................ 1,316 2,437
SHAREHOLDERS' EQUITY
Common stock $.001 par value, 50,000,000 shares authorized,
18,762,000 and 20,970,000 shares issued and outstanding at
December 31, 1998 and 1999, respectively........................... 19 21
Preferred stock $.001 par value, 50,000,000 shares authorized,
6,360,000 and 4,793,000 issued and outstanding at December 31,
1998, and 1999, respectively....................................... 6 4
Subscription receivable.......................................... (19) -
Additional paid in capital....................................... 72,795 134,951
Accumulated deficit.............................................. (6,436) (57,971)
Other comprehensive income (loss)................................ 994 (8,246)
------- --------
Total shareholders' equity....................................... 67,359 68,759
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ $79,445 $287,800
======= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For year ended December 31
----------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
(in thousands, except share and per share data)
<S> <C> <C> <C>
Revenue
Internet Projects........................................ $ 1,598 $ 5,139 $ 5,663
Network Services......................................... 716 3,495 16,635
---------- ----------- -----------
Total revenues................................................ 2,314 8,634 22,298
Cost of revenues:
Internet Projects........................................ 1,495 4,699 5,110
Network Services......................................... 866 4,067 17,148
Depreciation and amortization............................ 171 1,674 3,804
---------- ----------- -----------
Total cost of revenues........................................ 2,532 10,440 26,062
---------- ----------- -----------
Gross margin (loss)........................................... (218) (1,806) (3,764)
General and administrative expenses....................... 482 1,576 18,844
Sales and marketing expenses.............................. 1,188 3,844 12,238
Research and development.................................. 280 2,941 4,304
Depreciation and amortization............................. 116 880 8,322
---------- ----------- -----------
Total operating expenses 2,066 9,241 43,708
---------- ----------- -----------
Operating loss................................................ (2,284) (11,047) (47,472)
Interest expense.............................................. 39 197 18,039
Interest income............................................... 154 4,138
Foreign currency gains(losses)................................ -- -- (4,646)
---------- ----------- -----------
Loss before taxes and minority interest....................... (2,323) (11,090) (66,019)
Income tax benefit............................................ 1,339 6,172 14,384
---------- ----------- -----------
Net loss before minority interest............................. (984) (4,918) (51,635)
Minority interest............................................. - 145 100
---------- ----------- -----------
Net loss...................................................... $ (984) $ (4,773) $ (51,535)
========== =========== ===========
Basic and diluted loss per share.............................. $(0.12) $(0.30) $(2.59)
========== =========== ===========
Number of shares used to compute earnings per share........... 8,342,297 16,012,653 19,877,290
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For year ended December 31,
-------------------------------
1997 1998 1999
-------- --------- ----------
<S> <C> <C> <C>
(in thousands)
Cash Flows from Operating Activities:
Net loss...................................................................... $ (984) $ (4,773) $ (51,535)
Adjustments to reconcile net loss to net cash used by operations:
Minority interest......................................................... - (145) (100)
Deferred tax credit....................................................... (1,349) (6,172) (14,400)
Depreciation and amortization............................................. 287 2,554 12,126
Provision for losses on accounts receivable............................... 33 121 927
Amortization of Bond discount............................................. - - 2,710
Changes in operating assets and liabilities:
Trade accounts receivable................................................. (475) (1,296) (3,563)
Other receivables......................................................... (136) (1,423) (3,622)
Other assets.............................................................. - (2) (9,663)
Prepaid expenses and other current assets................................. (32) (310) (1,383)
Trade accounts payable.................................................... (402) 1,028 12,077
Accrued interest expense.................................................. - - 3,792
Other accrued expenses and liabilities.................................... 1,378 17 12,576
Accrued personnel costs................................................... 248 66 2,018
------- -------- ---------
Total changes in operating assets and liabilities 581 (1,920) 12,232
Net cash used in operating activities.................................... (1,432) (10,335) (38,040)
Cash Flows from Investing Activities:
Purchase of short term investments............................................ (7,280) (105) (77,537)
Proceeds from sale of short term investments.................................. 6,931 810 33,177
Restricted Cash............................................................... - - (58,249)
Purchase of property and equipment............................................ (1,708) (6,034) (24,010)
Product development costs..................................................... (2,465) (3,866) -
Acquisition of businesses, net of cash acquired............................... (269) (734) (24,072)
Payment of deferred purchase obligations...................................... - - (4,085)
------- -------- ---------
Net cash used in investing activities.................................... (4,791) (9,929) (154,776)
Cash Flows from Financing Activities:
Proceeds from issue of common stock, net...................................... 8,070 57,577 -
Receipt of subscription receivable............................................ - 716 19
Proceeds from issuance of warrants............................................ - - 51,199
Proceeds from issuance of bonds - and other borrowings........................ 700 2,092 174,355
Repayment of borrowings....................................................... (126) (375) (1,941)
------- -------- ---------
Net cash provided by financing activities................................ 8,644 60,010 223,632
------- -------- ---------
Translation adjustments....................................................... (210) 891 (479)
------- -------- ---------
Net (decrease) increase in cash and cash equivalents.......................... 2,211 40,637 30,337
Cash and cash equivalents at beginning of period.............................. 28 2,239 42,876
------- -------- ---------
Cash and cash equivalents at end of year...................................... $ 2,239 $ 42,876 $ 73,213
======= ======== =========
Supplemental disclosure of non-cash investing and financing activities:
Acquisitions (Note 3):
Fair value of assets acquired............................................. $ 2,230 $ 8,800 $ 35,575
Less:
Cash acquired........................................................ 183 129 256
Deferred purchase obligation......................................... - 4,483 -
Cash paid............................................................ 452 864 24,328
Stock issued......................................................... 1,051 1,677 8,560
------- -------- ---------
Liabilities assumed....................................................... $ 544 $ 1,647 $ 2,431
======= ======== =========
Stock dividend................................................................ - (392) -
Other supplemental cash flow disclosures:
Cash paid for interest................................................... 40 197 1,872
Cash paid for taxes...................................................... 17 11 16
Depreciation............................................................. 192 1,059 5,877
Amortization............................................................. 95 1,495 6,249
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(all amounts in thousands)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
--------------------------------- Subscription Paid-In
Shares Amount Shares Amount Receivable Capital
------ ------ -------- ------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996..... 5,160 $ 5 6,360 $ 6 $ 2,066
Issuance of shares in
reverse acquisition........ 9,522 10 232
Issuance of shares for cash. 1,400 1 (735) 8,804
Net loss....................
Comprehensive income items..
Comprehensive loss..........
------ --- ------ --- ----- --------
Balance December 31, 1997... 14,682 $15 7,760 $ 7 $(735) $ 11,102
------ --- ------ --- ----- --------
Conversion of preferred 1,400 1 (1,400) (1)
stock......................
Stock dividend.............. 22 392
Issuance of shares for 158 3,726
acquisitions...............
Issuance of shares for cash. 700 1 12,599
Payment of subscription 716
receivable.................
Issuance of shares for cash. 1,800 2 44,976
Net loss....................
Comprehensive income items..
Comprehensive loss..........
------ --- ------ --- ----- --------
Balance December 31, 1998... 18,762 $19 6,360 $ 6 $ (19) $ 72,795
------ --- ------ --- ----- --------
Issuance of shares for 607 10,260
acquisitions...............
Payment of subscription 19
receivable.................
Conversion of preferred 1,567 2 (1,567) (2) -
stock
Warrants.................... 51,198
Other issuances............. 34 698
Net loss....................
Comprehensive income items..
Comprehensive loss..........
------ --- ------ --- ----- --------
Balance December 31, 1999... 20,970 $21 4,793 $ 4 $ 0 $134,951
====== === ====== === ===== ========
</TABLE>
<TABLE>
<CAPTION>
Unrealised Accumulated Total
Accumulated holding Translation
Deficit gains/(losses) Adjustment Equity
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance January 1, 1996..... $ (287) $ - $ 1,790
Issuance of shares in 242
reverse acquisition........
Issuance of shares for cash. 8,070
Net loss.................... (984) (984)
Comprehensive income items.. (210) (210)
--------
Comprehensive loss.......... (1,194)
-------- ------------- ------- --------
Balance December 31, 1997... $ (1,271) $ -- $ (210) $ 8,908
-------- ------------- ------- --------
Conversion of preferred --
stock......................
Stock dividend.............. (392) --
Issuance of shares for 3,726
acquisitions...............
Issuance of shares for cash. 12,600
Payment of subscription 716
receivable.................
Issuance of shares for cash. 44,978
Net loss.................... (4,773) (4,773)
Comprehensive income items.. 1,204 1,204
--------
Comprehensive loss.......... (3,567)
-------- ------------- ------- --------
Balance December 31, 1998... $ (6,436) $ -- $ 994 $ 67,359
-------- ------------- ------- --------
Issuance of shares for 10,260
acquisitions...............
Payment of subscription 19
receivable.................
Conversion of preferred -
stock
Warrants.................... 51,198
Other issuances............. 698
Net loss.................... (51,535) (51,535)
Comprehensive income items.. (870) (8,370) (9,240)
--------
Comprehensive loss.......... (60,775)
-------- ------------- ------- --------
Balance December 31, 1999... $(57,971) $(870) $(7,376) $ 68,759
======== ================ ======= ========
</TABLE>
F-6
<PAGE>
CYBERNET INTERNET SERVICES INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. Basis of Presentation
Cybernet Internet Services International, Inc. ("Cybernet Inc") (formerly known
as New Century Technologies Corporation) was incorporated under the laws of the
State of Utah on September 27, 1983. Cybernet Inc changed its state of
incorporation to Delaware in November 1998. Effective September 16, 1997 the
Company acquired Cybernet Internet Dienstleistungen AG ("Cybernet AG"), a German
stock corporation which offers a variety of Internet related telecommunication
and systems integration services to corporate customers. Cybernet AG was founded
in December 1995, and commenced significant operations in 1996. The acquisition
has been accounted for as a reverse acquisition whereby the Cybernet Inc is
considered to be the acquiree even though legally it is the acquiror.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Cybernet Inc and
its subsidiaries ("the Company"). All significant intercompany investments,
accounts, and transactions have been eliminated.
Foreign Currency
The functional currency, for the Company and its subsidiaries is the German
Deutsche Mark ("DM").
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 services. Telecommunication and system integration products consist
of the development of customized business solutions, installation of hardware
and software and production support. 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. Ongoing network services consist of
monthly user fees for network access and related services
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-
line method over the estimated useful life of the asset, which ranges from 4
years (computer equipment and software) to 10 years (leasehold improvements and
furniture and fixtures).
Product Development Costs
The Company capitalizes costs incurred related to the development of products
that will be sold to customers. Costs capitalized include direct labor and
related overhead and third party costs related to establishing network systems.
All costs in the development process are classified as research and development
and expensed as incurred until technological feasibility has been established.
Once technological feasibility has been established, which is defined as
completion of a working model, such costs are capitalized until the individual
products are commercially available. Amortization, which began in 1997, is
calculated using the greater of (a) the ratio that current gross revenues for a
product bear to the total of current and anticipated future revenues for that
product or (b) the straight-line method over four years. The carrying value of
product development costs is regularly reviewed by the Company and a loss
recognized when the net realizable value falls below the unamortized cost. In
1999 such a loss totalling DM 800,000 ($436,000) was recorded as additional
amortization in the German operations as the related products are no longer
being marketed by the Company. Accumulated amortization amounted to $1,017,000
and $2,734,000 at December 31, 1998 and 1999 respectively.
Sales and Marketing Costs
Marketing costs include the costs of all personnel engaged in marketing
activities, the costs of advertising and public relations activities (e.g. trade
shows), and other related costs. Advertising costs are expensed as incurred.
Advertising expense was $227,000, $610,000 and $2,751,000 in the years ended
December 31, 1997, 1998 and 1999 respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
F-7
<PAGE>
Short Term Investments
In accordance with Statement of Financial Accounting Standard ("Statement") 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.
Concentration of Credit Risk
Financial statements that potentially subject the Company to concentrations of
credit risks consist primarily of cash and cash equivalents, short term
investments, restricted cash and trade accounts receivable. Short term
investments are comprised highly liquid mutual fund investments. Credit risk on
trade receivable balances is minimized by the diverse nature of the Company's
customer base.
The Company is economically dependent on the entities from which it leases the
telecommunication lines comprising its network. It is probable that failure of
these entities to honor their lease obligations or to renew leases under
economically viable conditions could have a negative near-term impact on the
Company's growth and results of operations.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States 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 a period between 5
and 10 years. Accumulated amortization totaled $358,000 and $2,861,000 at
December 31, 1998 and 1999, 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 "Accounting for Stock-
based compensation" ("Statement 123") in Note 12.
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.
F-8
<PAGE>
3. Business Acquisitions
On September 16, 1997, the Company acquired all of the outstanding shares of the
common stock of Cybernet AG in exchange for the issuance of 5,160,000 shares of
common stock of the Company, 1,200,000 shares of Series A preferred stock of the
Company and 5,160,000 shares of Series B preferred stock of the Company, such
shares representing the outstanding shares of the Company at that date.
Generally accepted accounting principles require that the Company be considered
the acquired company for financial statement purposes (a reverse acquisition)
even though the entity will continue to be called Cybernet Internet Services
International, Inc. Therefore, the acquisition has been recorded as a
recapitalization of Cybernet AG. The effects of the reverse acquisition have
been reflected for all share amounts in the accompanying financial statements.
The Company had no operations at the time of the reverse acquisition.
Effective September 16, 1997, the Company acquired 100% of the outstanding
shares of Artwise GmbH ("Artwise"), for a total consideration of DM 1,710,000
($954,000). DM 475,000 ($265,000) 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 1,507,000
($841,000), 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 983,000
($548,000). DM 335,000 ($187,000) 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 from January 1, 1998 are reflected in the accompanying financial
statements. Goodwill recorded in connection with the acquisition of Eclipse, of
DM 896,000 ($507,000), 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
4,251,000 ($2,540,000). DM 1,445,000 ($864,000) 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 from August 15, 1998.
Goodwill recorded in connection with the acquisition of Open:Net, of DM
3,520,000 ($2,298,000) was being amortized over 10 years. After a reassessment
by management, with effect from January 1, 1999 the remaining goodwill is being
amortized over four years
Effective December 28, 1998, the Company acquired 100% of the outstanding shares
of Vianet Internet Dienstleistungen AG ("Vianet") for a cash payment of DM
7,500,000 ($4,483,000) and 300,000 shares of the common stock of the Company
which were to be issued to the selling shareholders of Vianet in increments of
60,000 shares over five years contingent on the continued employment of the
individuals. In 1999, 30,000 shares were released in accordance with the terms
of the agreement and an additional 75,000 were released in connection with the
termination of one if the original shareholders, who lost his right to the
balance of the 150,000 due under the original agreement. The value of the
remaining 120,000 shares will be added to the cost of acquiring the Vianet when
the shares are issued to the selling shareholders. The acquisition has been
accounted for using the purchase method of accounting and as such the
accompanying financial statements reflect Vianet's results of operations from
January 1,1999. Goodwill recorded in connection with the acquisition of Vianet,
amounting to DM 6,419,000 ($3,838,000), is being amortized over 10 years.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1997 and 1998 assume the acquisitions described above
occurred as of January 1, 1997:
<TABLE>
<CAPTION>
Year ended 31 December
----------------------
1997 1998
--------- ---------
(in thousand except per share data)
<S> <C> <C>
Revenue............................................. $ 7,468 $12,590
Net loss............................................ (2,066) (6,068)
Basic and diluted loss per share.................... $ (0.21) $ (0.38)
</TABLE>
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
3,103,000 ($1,639,000). DM 1,807,000 ($954,000) of the purchase price was paid
in cash (in Swiss Francs) with the remainder settled in exchange for the
issuance of 25,680 shares of the common stock of the Company.
F-9
<PAGE>
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 from April 13, 1999. Goodwill recorded in connection with the
acquisition of Sunweb, amounting to DM 2,678,000 ($1,414000), is being amortized
over 10 years.
Effective June 30, 1999, the Company acquired 100% of the outstanding shares of
Cybernet Italia S.p.A.(formerly Flashnet S.p.A.) for a total consideration of
DM52,816,000 ($27,890,000). DM41,464,000 ($21,896,000) of the purchase price was
paid in cash (in Italian Lire) 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 and as such the
accompanying financial statements reflect Cybernet Italia's results from June
30, 1999. Goodwill recorded in connection with the acquisition of Cybernet
Italia, amounting to DM 32,136,000 ($16,970,000), is being amortized over 10
years. The allocation of the excess purchase price over net assets acquired is
preliminary and is expected to be finalized by June 30, 2000,
Effective October 28 1999, the Company acquired of 51% of the outstanding shares
of Novento Telecom AG ("Novento") and 51% of Multicall Telefonmarketing AG
("Multicall") for a consideration of DM 3,178,000 ($ 2,373,000). DM 2,002,000
($1,092,000) of the purchase price was paid in cash with the remainder settled
in exchange for the issuance of 39,412 shares of the common stock of the
Company. The Company has an option to acquire the remaining 49% of the shares of
both companies. The acquisition has been accounted for using the purchase method
of accounting and as such the accompanying financial statements reflect Novento
and Multicall's results from October 28, 1999. Goodwill recorded in connection
with the acquisition of Novento, amounting to DM 1,913,000 ($1,043,000) is being
amortized over 10 years.
Effective October 29, 1999 the Company acquired the remaining 34% of the
outstanding shares of Eclipse, in which the Company already owned 66% of the
outstanding shares, for a total consideration of DM 4,320,000 ($2,356,000). DM
707,000 ($386,000) of the purchase price was paid in cash with the remainder
settled by way of the depositing of 136,402 shares of the common stock of the
Company in a pooling trust from which the shares will be released to the
sellers. Goodwill recorded in connection with the acquisition of the remaining
shares in Eclipse, amounting to DM 3,718,000 ($2,359,000), is being amortized
over the remaining life of the goodwill associated with the acquisition of the
majority shareholding at the end of 1997, as detailed above.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1998 and 1999 assume the acquisitions of Open:Net,
Vianet, Sunweb, Cybernet Italia, Novento and Multicall had occurred as of
January 1, 1998.
<TABLE>
<CAPTION>
Year ended 31 December
---------------------------------------
1998 1999
---------------- ----------------
(in thousand except per share data)
<S> <C> <C>
Revenue $ 17,764 $ 30,281
Net loss (12,875) (54,669)
Basic and diluted loss per share $ (0.77) $ (2.75)
</TABLE>
F-10
<PAGE>
4. Short Term and Restricted Investments
Under the terms of Units issued on July 1, 1999 (refer note 9 below) amounts
equivalent to the first six scheduled interest payments were invested in US
government securities and restricted in their use to the payment of such
interest when falling due. These have been classified as Restricted Investments.
Short-term and restricted investments are summarized as follows:
<TABLE>
<CAPTION>
Cost Unrealized Unrealized Market
holding holding value
gains losses
Short term investments (in thousands)
<S> <C> <C> <C> <C>
December 31, 1999
Italian Government Treasury bonds............ $ 2,643 $- $ - $ 2,643
Activest Euro Geldmarkt Plus, WKN 975247..... 7,446 4 - 7,450
3.50% Allg. Hypo-Bank Pfandbriefe S. 482,
due 1.13.2000, WKN 202782.................... 30,210 - 72 30,138
HypoVereinsbank FLR-MTN, due 12.6.2009....... 1,002 4 - 1,006
------- ------------ ---- -------
$41,301 $8 $ 72 $41,237
======= ============ ==== =======
December 31, 1998
BHF Bank Accugeld Fund....................... $ 112 - - $ 112
------- ------------ ---- -------
$ 112 $- $ - $ 112
======= ============ ==== =======
Restricted Investments
December 31, 1999
7.75% US Treasury Notes due January1, 2000... 8,612 - 102 $ 8,510
5.875% US Treasury Notes due July 1, 2000.... 9,105 - 53 9,052
5.5% US Treasury Notes due January1, 2001.... 9,333 - 81 9,252
6.625% US Treasury Notes due July 1, 2001.... 9,780 - 164 9,616
6.125%US Treasury Notes due January1, 2002... 10,036 - 182 9,854
6.25% US Treasury Notes due July 1, 2002..... 10,396 - 220 10,176
------- ------------ ---- -------
$57,262 $- $802 $56,460
======= ============ ==== =======
</TABLE>
In addition at December 31, 1999 there was interest due on the restricted
investments totaling $1,789,000 which is also restricted for the payment of
interest and as such has been classified as restricted investments in the
balance sheet.
The net unrealized holding gains and losses are recorded as a separate component
of shareholder's equity.
Proceeds from the sale of available for sale securities in 1997, 1998 and 1999
were $6,931,000, $810,000 and $33,177,000, respectively. The Company did not
recognize any gains on the sales of short term investments in 1997, 1998 or
1999.
5. Property and Equipment
Net property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1998 1999
------------------ ------------------
( in thousands)
<S> <C> <C>
Computer equipment and software................. $ 7,274 $23,281
Leasehold improvements.......................... 426 2,755
Furniture and fixtures.......................... 1,980 8,633
------- -------
9,680 34,669
Less accumulated depreciation and amortization.. (1,710) (6,190)
------- -------
Total Net Property and Equipment................ $ 7,970 $28,479
======= =======
</TABLE>
F-11
<PAGE>
6. Leases
The Company leases facilities and equipment under long-term operating leases,
and has long term data and voice communication agreements. Future minimum
payments under non-cancelable operating leasing with initial terms of one year
or more are as follows:
<TABLE>
<CAPTION>
Year ending December 31 (in thousands)
<S> <C>
2000............................................................. $ 7,413
2001............................................................. 3,254
2002............................................................. 2,484
2003............................................................. 2,052
2004............................................................. 510
Thereafter......................................................... 232
-------
$15,945
=======
</TABLE>
The Company's rental expense under operating leases in the years ended December
31, 1997, 1998 and 1999 totaled approximately $177,000, $1,069,000 and
$7,375,000 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 and 1999, the gross value of assets under capital leases was $2,580,000
and $6,885,000 and related accumulated depreciation was $610,000 and $
2,188,000, respectively. Future minimum lease payments in connection with these
leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31 ( in thousands)
<S> <C>
2000............................................................ $1,993
2001............................................................ 1,280
2002............................................................ 600
2003............................................................ 513
2004............................................................ 314
Thereafter -
------
4,700
Less: Interest Portion............................................... (535)
------
$4,165
======
</TABLE>
7. Other assets
Other non current assets consists principally of expenses incurred in connection
with the bonds issued during 1999 and amounts allocated to customer base and
management contracts in connection with business acquisitions. Bond issuance
costs of DM 13,816,000 ($ 7,096,000) are being amortized to interest expense
over the period of the borrowings. The unamortized balance at December 31, 1999
was DM 13,929,000 ($ 7,154,000). Amounts allocated to customer base and
management contracts are being amortized on a straight line basis over their
useful lives - between three and five years. The unamortized balance of these
assets at December 31, 1999 was DM 20,746,000 ($10,656,000)
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, 1999, the Company had established short-term unsecured
overdraft facilities under which the Company and its subsidiaries could borrow
up to DM 1,637,000 ($840,000). The facilities are denominated in Italian Lire as
to DM 1,495,000 and in Austrian Schilling as to DM 142,000. The interest rate
fluctuates based on current lending rates and was 9.75 %and 5,25 % at December
31, 1998 and 1999, respectively. As of December 31, 1999, DM 124,000 ($63,000)
of the overdraft facility was used and DM1,513,000 ($776,000) was available.
As of December 31, 1999, Multicall had a loan payable to a minority shareholder
of DM 728,000 ($374,000).
F-12
<PAGE>
9. Long term debt
The Company's debt consisted of the following:
<TABLE>
<CAPTION>
December 31
----------------------------
1998 1999
------------- -------------
<S> <C> <C>
(in thousands)
Notes payable, 3.75% interest, due in quarterly installments of principal and interest $ 42 $ -
through January 2005....................................................................
Notes payable, 6.2% interest, due in monthly installments of principal and interest 5 -
through June 1999.......................................................................
Notes payable, 6.6% interest, due in monthly installments of principal and interest 39 -
through December 2002...................................................................
14% Senior Dollar Notes payable, due 2009................................................ - 99,593
13% Convertible Senior Euro Subordinated Payment-in-kind Notes, due 2009................. - 26,339
13% Convertible Senior Dollar Subordinated Discount Notes, due 2009 - Offering 1......... - 36,706
13% Convertible Senior Dollar Subordinated Discount Notes, due 2009 - Offering 2......... - 15,734
----- --------
86 178,372
Less current portion..................................................................... (19) -
----- --------
Long-term portion........................................................................ $ 67 $178,372
===== ========
</TABLE>
Notes payable outstanding at December 31, 1998 were paid with the proceeds of
the debt issued in 1999.
On July 1, 1999, the Company issued 150,000 Units, each unit consisting of
$1,000 principal amount of 14.0% Senior Dollar Notes due 2009 ("Notes") and one
Warrant ("Warrant") to purchase 30.2311 ordinary shares of Cybernet Internet
Services International, Inc. Interest on the Notes is payable on July 1 and
January 1 of each year, beginning January 1, 2000. The Notes will mature on July
1, 2009. The Notes and the Warrants became transferable on September 10, 1999.
The Warrants can be exercised at an exercise price of $22.278 per ordinary share
of Cybernet Internet Services International, Inc, and are exercisable from
January 1, 2000 to July 1, 2009.
The net proceeds of the unit offering were approximately $146 million.
$57,466,000 thereof was invested in U.S. government securities which are
restricted in use of the payment in full of the first six scheduled interest
payments. $51,199,000 of the net proceeds were allocated to the Warrants based
on a fair value allocation of the proceeds between the Notes and the Warrants
and have been recorded in additional paid in capital. The resultant discount on
the Notes is being accreted over the term of Notes using the straight line
method.
The Units contain covenants applicable to the Company, including limitations and
requirements to indebtedness, restricted payments, dividends and other payments,
the issuance and sale of capital stock, transactions with stockholders and
affiliates, liens, asset sales, issuance of guarantees of indebtedness, sale-
leaseback transactions, consolidations and mergers, and provision of financial
statements and reports.
On August 26, 1999 the Company completed private offerings of $50,002,183 in
aggregate initial accreted value of 13.0% Convertible Senior Subordinated
Discount Notes due 2009 (in two separate offerings) ("Discount Notes") and Euro
25 million aggregate principal amount of 13.0% Convertible Senior Subordinated
Pay-In-Kind Notes due 2009 ("Payment-in-kind Notes"). The Discount Notes do not
accrue cash interest prior to August 15, 2004 and the first semi-annual payment
of cash interest is payable on February 15, 2004. The Payment-in-Kind Notes
require payment of interest semi-annually in the form of secondary notes issued
under the pay-in-kind feature starting on February 15, 2000 and continuing
through August 15, 2004, and in the form of cash starting on February 15, 2005
and continuing to maturity on August 15, 2004. The Discount Notes are
convertible at any time after August 26, 2000 and prior to maturity at the rate
of one share of common stock for each $25.00 of accreted value of the Discount
Notes being converted. The Payment-in-Kind Notes are convertible at any time
after August 26, 1999 and prior to maturity at the rate of one share of common
stock for each Euro 25 in principal amount of the notes being converted. After
payment of discounts and commissions, the net proceeds of these offerings were
approximately $72 million.
The covenants associated with the Discount Notes are in most material aspects
the same as those associated with Units, discussed above.
10. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
. Cash and equivalents, restricted cash, trade receivables, short term
investments, trade payables and accrued expenses - the carrying amounts
approximate fair value because of the short-term maturity of these
instruments.
F-13
<PAGE>
. Long-term debt - the fair value of the Company's 14% Senior Dollar Notes
payable, due 2009 is estimated based on quoted market values. The fair value
of, the 13% Convertible Senior Subordinated Discount Notes, and 13%
Convertible Senior Subordinated Pay-In-Kind Notes was also estimated on
quoted market values. The following table presents the carrying values and
fair values of the Company's long erm bonds at December 31, 1999
<TABLE>
<CAPTION>
Bond Carrying Fair
value value
----------- ----------
(in thousands)
<S> <C> <C>
14% Senior Dollar Notes payable, due 2009..................................................... $99,593 $141,000
13% Convertible Senior Euro Subordinated Payment-in-kind Notes, due 2009...................... 26,339 24,232
13% Convertible Senior Dollar Subordinated Discount Notes, due 2009 - Offering 1.............. 36,706 33,770
13% Convertible Senior Dollar Subordinated Discount Notes, due 2009 - Offering 2.............. 15,734 14,475
</TABLE>
. Capital lease and other long-term debt obligations - the fair value was
estimated using discounted cash flow analyses based on the Company's
incremental borrowing rates for similar type borrowings.
11. Stockholders' Equity
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock. Holders of
Common Stock are entitled to one vote per share on all matters submitted to a
vote of stockholders. The Common Stock is not redeemable and has no conversion
or preemptive rights.
Preferred Stock
The Company is authorized to issue 50,000,000 shares of Preferred Stock with
relative rights, preferences and limitations determined at the time of issuance.
As of December 31, 1999, 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.
A holder of Series A Preferred Stock may convert each share held 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.
In July 1999, holders of 276,560 shares of Series A Preferred Stock converted
their shares into 276,560 shares of the Company's Common Stock.
Series B Preferred Stock
F-14
<PAGE>
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 are not
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 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.
In July 1999, holders of 1,209,000 shares of Series B Preferred Stock converted
their shares into 1,290,000 shares of the Company's Common Stock.
Series C Preferred Stock
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.
12. Stock Option Plan
Stock Incentive Plan
In 1998, the Company adopted a stock incentive plan (,,Stock Incentive Plan")
which provides for the grant of stock options to purchase shares of the
Company's common stock to key employees who make a significant contribution to
the success of the Company and members of the Board of Directors. The Company
has elected to follow APB 25 and the related interpretations in accounting for
its employee stock options. Under APB 25, as long as the exercise price of the
Company's employee stock options equals the market price of the underlying stock
at date of grant, no compensation expense is recorded.
The Company has reserved 5,000,000 shares of common stock for issuances under
the Stock Incentive Plan. The following table presents the changes in the stock
options during the year.
<TABLE>
<CAPTION>
Option Exercise Weighted Average
Stock Options Price per Share Exercise Price
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Outstanding at January 1, 1998 -- -- --
Granted 685,000 $31.96 - $32.04 $32.01
Exercised -- -- --
Forfeited -- -- --
Outstanding at December 31, 1998 685,000 $31.96 - $32.04 $32.01
Granted 1,846,625 $ 9.02 - $45.07 $12.68
Exercised -- -- --
Forfeited 337,610 $ 9.02 - $45.07 $30.64
Outstanding at December 31, 1999 2,194,015 $ 9.02 - $45.07 $16.10
</TABLE>
F-15
<PAGE>
As of December 31, 1999 the Company had 198,757 options outstanding that were
fully vested. Options vest over a period of three years from the date of grant.
Statement 123 requires the presentation of pro forma information regarding net
income and earnings per share as if the Company had accounted for its employee
stock options under the fair value method of that statement. The fair value of
these options was estimated at the date of grant using the Black-Scholes option
pricing model. The assumptions used in calculating the fair value of the
options granted in 1998 and 1999 were as follows.
<TABLE>
<CAPTION>
1998 Grants 1999 Grants
--------------------- ---------------------
<S> <C> <C>
Risk free interest rate..................... 4.5% 5.5%
Stock price volatility factor............... 0.8 0.8
Expected life of options.................... 5 years 5 years
Dividend yield.............................. 0.0% 0.0%
</TABLE>
The fair market value of the options using the Black-Scholes pricing model
granted in the years ended December 31, 1998 and 1999 was $13,320,000 and
$15,427,789, respectively. Had the Company determined compensation expense for
this plan in accordance with the provisions of Statement 123, the fair value of
the options would have been amortized over the option vesting periods. Under
this method, the Company's net loss and loss per share for the years ended
December 31, 1998 and 1999 would have been as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C>
Proforma net loss- thousand................. $4,996 $56,944
Proforma net loss per share - basic and
diluted.................................... $ 0.31 $ 2.87
</TABLE>
13. Provision for 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 Company's principal operations are currently located in Germany. Pretax loss
for the years ended December 31, 1997, 1998 and 1999 were taxable in the
following jurisdictions:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------
1997 1998 1999
-------------------- ----------------- --------------
<S> <C> <C> <C>
( in thousands)
Germany........................................ $(2,303) $(10,481) $(58,081)
Others......................................... (20) (609) (7,938)
------- -------- --------
$(2,323) $(11,090) $(66,019)
======= ======== ========
</TABLE>
The components of the provision for income taxes, substantially all of which
relates to Germany, are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1997 1998 1999
----------------- ----------------- --------------
<S> <C> <C> <C>
( in thousands)
Current.......................................... 10 - 16
Deferred......................................... (1,349) (6,172) (14,400)
------- ------- --------
Income tax benefit............................... $(1,339) $(6,172) $(14,384)
======= ======= ========
</TABLE>
The Company has net deferred tax assets as of December 31,1998 and 1999 as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1999
--------------- -------------
Deferred tax assets ( in thousands)
<S> <C> <C>
Net operating losses........................................ $11,695 $ 34,198
Other....................................................... 856
------- --------
11,695 35,054
Valuation allowance......................................... - (12,250)
------- --------
$11,695 $ 22,804
======= ========
</TABLE>
F-16
<PAGE>
<TABLE>
<S> <C> <C>
Deferred tax liabilities
Product development costs................................... 3,316 1,863
Depreciation and amortization............................... 212 169
Other....................................................... 1 1
------- --------
3,529 2,033
------- --------
Net deferred tax assets.......................................... $ 8,166 $ 20,771
======= ========
</TABLE>
As of December 31, 1999, the Company and its subsidiaries had available combined
cumulative tax loss carry forwards of approximately $67.9 million substantially
all of these loss carry forwards have an indefinite life. Management believes
that the remaining deferred tax assets of the $20.7 million is more likely than
not to be realised through future taxable income. 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.
The Company has recorded a valuation allowance to reflect the estimated amount
of net operating loss carry-forward which may not be realized.
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>
Year ended December 31
-----------------------------------------------------
1997 1998 1999
(in thousands)
<S> <C> <C> <C>
Income tax benefit at statutory rate............................ $ (813) $(3,881) $(23,107)
Higher foreign tax rates........................................ (530) (2,529) (9,161)
Valuation allowance............................................. - - 12,960
Goodwill and other intangibles.................................. - 133 4,287
Statutory rate change........................................... - - 550
Other........................................................... 4 105 87
------- ------- --------
Income tax benefit.............................................. $(1,339) $(6,172) $(14,384)
======= ======= ========
</TABLE>
14. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1999
---------------- ---------------
<S> <C> <C>
(in thousands, except per share data)
Numerator:
Net loss-numerator for basic and diluted loss per.......... $(4,773) $(51,535)
Denominator:
Denominator for basic and diluted loss per share --
weighted average shares outstanding....................... 16,013 19,877
Basic and diluted loss per share................................ $ (.30) $ (2.59)
</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.
15. Related Party Transaction
The Company paid DM 170,000 ($97,000), DM 173,000 ($98,000) and DM 479,000
($261,000) 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, 1997 ,1998 and
1999, respectively.
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.
At December 31, 1999, Multicall owed DM 728,000 ($374,000) to its minority
shareholder.
In the year ended December 31, 1999, Sunweb purchased goods and services
totaling CHF 2,346,000 ($1,251,000) from a company owned by a relative of one of
its shareholders.
F-17
<PAGE>
16. Segment information
The Company evaluates performance, and allocates resources, based on the
operating profit of its subsidiaries. The accounting policies of the reportable
segments are the same as those described in the Summary of Significant
Accounting Policies in Note 2.
The Company operates in one line of business, which is providing international
Internet backbone and access services and network business solutions for
corporate customers. The Company's reportable segments are divided by country
since each country's operations are managed and evaluated separately.
Information concerning the Company's geographic locations is summarized as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1997 1998 1999
------------ ---------------- ---------------
<S> <C> <C> <C>
(in thousands)
Revenues:
Germany.............................................. $ 2,314 $ 7,693 $ 12,080
US................................................... -- -- -
Italy............................................... -- 941 5,499
Other................................................ -- -- 4,719
------- -------- --------
Total................................................ $ 2,314 $ 8,634 $ 22,298
======= ======== ========
Depreciation and Amortization:
Germany.............................................. $ 287 $ 2,377 $ 5,161
US................................................... -- 109 5,800
Italy............................................... -- 68 646
Other................................................ -- -- 519
------- -------- --------
Total................................................ $ 287 $ 2,554 $ 12,126
======= ======== ========
Interest Expense:
Germany.............................................. $ 40 $ 180 $ 114
US................................................... -- 3 17,719
Italy............................................... -- 14 185
Other................................................ -- -- 21
------- -------- --------
Total................................................ $ 40 $ 197 $ 18,039
======= ======== ========
Interest Income:
Germany.............................................. $ - $ 30 $ 26
US................................................... -- 124 4,110
Italy................................................ -- -- -
Other................................................ -- -- 2
------- -------- --------
Total................................................ $ - $ 154 $ 4,138
======= ======== ========
Loss before Taxes:
Germany.............................................. $(2,323) $(10,481) $(33,537)
US................................................... -- (175) (24,544)
Italy............................................... -- (434) (5,094)
Other................................................ -- -- (2,844)
------- -------- --------
Total................................................ $(2,323) $(11,090) $(66,019)
======= ======== ========
Income tax benefit:
Germany.............................................. $ 1,339 $ 6,172 $ 14,586
US................................................... -- -- (28)
Italy............................................... -- -- (170)
Other................................................ -- -- (4)
------- -------- --------
Total................................................ $ 1,339 $ 6,172 $ 14,384
======= ======== ========
Total Assets:
Germany.............................................. $12,343 $ 28,687 $ 59,149
US................................................... 47,689 207,339
Italy............................................... 1,512 15,561
Other................................................ 274 1,557 5,751
------- -------- --------
Total................................................ $12,617 $ 79,445 $287,800
======= ======== ========
</TABLE>
F-18
<PAGE>
The Company's property, plant and equipment by geographic location and capital
expenditures by geographic area are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
------------ -----------
Property, plant and equipment (in thousands)
<S> <C> <C>
Germany.............................................. $6,335 $18,918
US................................................... -- --
Italy................................................ 936 6,263
Other................................................ 699 3,298
------ -------
Total................................................ $7,970 28,479
====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------
Capital Expenditures: 1998 1999
----------- -----------
(in thousands)
<S> <C> <C>
Germany.............................................. $5,097 $16,761
US................................................... -- --
Italy................................................ 937 4,015
Other................................................ - 3,234
------ -------
Total................................................ $6,034 $24,010
====== =======
</TABLE>
17. Recent pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("Statement 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. Statement No. 133, as
amended, is effective for fiscal year beginning after June 15, 2000 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.
18. Subsequent events
Effective January 1, 2000 the Company acquired the remaining 49% interest in
Novento for total consideration of DM 8,609,000 ($4,422,000).
On January 1, 2000 the Company invested DM 2,000,000 ($1,027,000) in a EDI
software development company based in Gottingen, Germany. In exchange the
Company has the option to acquire 51% of the company based on its revenue and
profitability for 2000, and exclusive right to market its product line.
In February 2000, the Company entered into a stock purchase agreement providing
for the purchase of 100% of the outstanding stock of Cybernet S.a.g.l., an
Internet Business-to-Business provider located in Lugano, Switzerland, for a
consideration of DM 592,000 ($304,000) and 12,000 shares of common stock of the
Company.
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
Schedule II
$ thousand Balance at Charged to costs Recoveries Balance at end of
beginning of and expenses period
period
<S> <C> <C> <C> <C>
For the year ended December 31, 1997
- - Allowance for doubtful debt 15 18 - 33
For the year ended December 31, 1998
- - Allowance for doubtful debt 33 328 - 361
For the year ended December 31, 1999
- - Allowance for doubtful debt 361 831 - 1,192
- - Deferred tax asset valuation allowance - 12,250 - 12,250
</TABLE>
F-19
<PAGE>
Independent Accountants' Reports on Cybernet Italia S.p.A. and Eclipse S.p.A.
Presented below are the Independent Accountants' Reports on Cybernet Italia
S.p.A. and Eclipse S.p.A.. These audit reports and the related audited financial
statements were relied on by Ernst & Young in the performance of their audit of
the consolidated financial statements of the Company. Their audit report is
contained on page F-2. The audited financial statements of Cybernet Italia
S.p.A. and Eclipse S.p.A. referred to in these audit reports have not been
included in this document.
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
The Board of Directors
Cybernet Italia S.p.A.
Via C. Veneziani, 48
Roma, Italy
We have audited the accompanying balance sheet of Cybernet Italia S.p.A. as
of December 31, 1999, and the related statements of loss, stockholders' equity
(deficit), and cash flows for the six months 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 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 audits 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 Cybernet Italia S.p.A. as of
December 31, 1999 and 1998, and the 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.
Cybernet Italia S.p.A. is a wholly-owned subsidiary of Cybernet Internet
Services International, Inc. ("Cybernet"). As shown in the accompanying
financial statements, the Company has incurred a net loss of ITL 5,944 millions
for the six months ended December 31, 1999, and has incurred substantial net
losses for the past two years. At December 31, 1999, current liabilities
exceeded current assets by ITL 7,102 millions and total liabilities
substantially equalled total assets. Realization of a major portion of the
assets in the accompanying balance sheet is dependent upon continued operations
of the Company, which in turn is dependent upon the Company's success of its
future operations and the continuing financial support of Cybernet. As
discussed in Note 2.b, Management believes that actions presently taken to
revise the Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern. It is not possible,
however, to predict at this time the success of management efforts.
Accordingly, the Company has received firm commitments from Cybernet that
Cybernet will continue to meet the Company's financial requirements in the event
this is necessary.
March 29, 2000
/s/ Grant Thornton S.p.A.
Grant Thornton S.p.A.
F-20
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
The Board of Directors
Eclipse S.p.A.
Vicolo S. Maria, 30
Rovereto, Italy
We have audited the accompanying balance sheet of Eclipse S.p.A. as of
December 31, 1999, and the related statement of loss, stockholders' equity, and
cash flows 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 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 Eclipse S.p.A. as of
December 31, 1999, 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.
Eclipse S.p.A. is a wholly-owned subsidiary of Cybernet Internet Services
International, Inc. ("Cybernet"). As shown in the accompanying financial
statements, the Company has incurred a net loss of ITL 3,814 millions. At
December 31, 1999, current liabilities exceed current assets by ITL 1,288
millions and total liabilities substantially equalled total assets. Realization
of a major portion of the assets in the accompanying balance sheet is dependent
upon continued operations of the Company, which in turn is dependent upon the
Company's success of its future operations and the continuing financial support
of Cybernet. As discussed in Note 2.b, Management believes that actions
presently taken to revise the Company's operating and financial requirements
provide the opportunity for the Company to continue as a going concern. It is
not possible, however, to predict at this time the success of management
efforts. Accordingly, the Company has received firm commitments from Cybernet
that Cybernet will continue to meet the Company's financial requirements in the
event this is necessary.
March 29, 2000
/s/ Grant Thornton S.p.A.
Grant Thornton S.p.A.
F-21
<PAGE>
Exhibit 10.1.1
Amending Agreement
------------------
Concerning the Sale and Assignment of Interest in
-------------------------------------------------
Artwise GmbH Software Losungen
------------------------------
of September 18, 1997
---------------------
Between
1. Mr Rolf Strehle, residing in Kreuzbergstr. 53/1, 8919 Westerstetten,
2. Mr Gerhard Schonenberger, residing in Wannenmacherstr. 11, 89160
Tomerdingen,
- hereinafter individually or collectively referred to as "Sellers" -
on the one side, and
3. Cybernet Internet-Dienstleistungen AG, and
4. Cybernet Internet-Beteiligungs GmbH,
- hereinafter individually or collectively referred to as "Buyers" -
on the other side, by referring to the document by the notary Dr. Siegmar
Mossner of September 18, 1997 (document No. 1218/1997) the following is agreed:
1. In the document of September 18, 1997, (S) 6, the parties agreed on a
prohibition to compete. The parties agree that the Sellers, effective from
this day of signing this agreement, are released from this prohibition to
compete. The Sellers do not have to pay a special consideration to the Buyer
for it.
2. In the document of September 18, 1997, in (S) 3, subsection 2.2, the parties
agreed that the shares received from the Sellers may not be disposed of in a
volume of 25% no earlier than after January 1, 1999, in the volume of
another 25% no earlier than after January 1, 2000 and in the volume of the
remaining 50% no earlier than after January 1, 2001. The parties hereby
agree that the preceding holding deadlines shall be discontinued effective
from January 1, 2000. The parties hereby instruct the trustee irrevocably to
transfer the shares that are
<PAGE>
still with the trustee to the Sellers after January 1, 2000 and/or release
them.
3. In all other respects, the agreements of the document of September 18, 1997
shall not be affected.
Munich, November 10, 1999
/s/ Rolf Strehle /s/ Illegible Signature
- ----------------- --------------------------------------
(Rolf Strehle) Cybernet Internet-Dienstleistungen AG
/s/ Gerhard Schonenberger /s/ Illegible Signature
- ------------------------- --------------------------------------
(Gerhard Schonenberger) Cybernet Internet-Beteiligungs GmbH
<PAGE>
Exhibit 10.29
Condition Precedent-Based Sale and Transfer of Novento Telecom AG and Multicall
- -------------------------------------------------------------------------------
Telefonmarketing AG Stock and Sale and Assignment of Claims
-----------------------------------------------------------
1. Bernd Buchholz,
address: Am Muhlenbach 19, 40670 Meerbusch
2. Annette Buchholz,
address: Am Muhlenbach 19, 40670 Meerbusch
3. Wilfried Buchholz,
address: WilmelmsstraBe 10, 30171 Hannover
4. Brunhilde Buchholz,
address: WilhelmsstraBe 10, 30171 Hannover
5. Christiane Hesebeck,
address: Alter Kirchweg 50, 21217 Seevetal
6. Jochen Boekel,
address: Arnulfstr. 22, 40545 Dusseldorf
- hereinafter referred to jointly or singly as "Sellers" -
and
Cybernet Internet Services International, Inc.
a company incorporated under the law of the State of Delaware, U.S.A.
Stefan-George-Ring 19-23, 81929 Munich
- hereinafter referred to as "Buyer"
are hereby concluding the following condition precedent agreement governing the
purchase and transfer of stock and claims:
<PAGE>
Preliminary Remark
The Sellers 2 - 6 all hold a total of 49% of Novento Telecom AG stock, the
Seller 1 holds 49% of Multicall Telefonmarketing AG stock, and they intend to
sell all Novento Telecom AG and Multicall Telefonmarketing AG (hereinafter
referred to jointly as "Companies") stock held by them to the Buyer subject to a
condition precedent (put option). The Buyer intends to acquire all Novento
Telecom AG and Multicall Telefonmarketing AG stock held by the Sellers subject
to a condition precedent (call option). The purchase price shall be dependent
upon the consolidated turnover and result of the Companies.
(S)1
Interests Held and Stockholder Loans
1. Novento Telecom AG (hereinafter referred to as "Novento AG") registered with
the registration court of the Dusseldorf local court under HRB 30784, has a
registered capital stock of DM 400,000.00 divided into 80,000 shares of
registered stock in the nominal amount of DM 5,00 (hereinafter referred to
as "Novento Stock"). Of the 80,000 shares of Novento stock the Sellers 2 - 6
hold a total of 39,200 shares, with the Sellers 2 - 5 holding 7,999 shares
and the Seller 6 holding 7,204 shares.
2. Multicall Telefonmarketing AG (hereinafter referred to as "Multicall AG")
registered with the registration court of the Wilmhelmshaven local court
under HRB 1349, has a capital stock of DM 200,000.00 divided into 40,000
shares of registered stock in the nominal amount of DM 5,00 (hereinafter
referred to as "Multicall Stock"). Of the 40,000 shares of Multicall stock a
total of 19,600 shares are held by the Seller 1.
<PAGE>
(S)2
Condition Precedent Sale and Transfer
1. The Sellers 2 - 6 hereby sell their total of 39,200 shares of Novento stock
and the Seller 1 his 19,600 shares of Multicall stock to the Buyer subject
to the condition precedent from the following subsections 2 and 3.
2. The Sellers may produce the condition precedent according to subsection 1
above by making a written statement to the Buyer one month following receipt
of the consolidated interim report of the Companies (as stipulated in (S) 3,
subsection 5 below) (put option). The Sellers authorize the lawyer Dr.
Tucking to issue the statement on behalf of them.
3. The Buyer may produce the condition precedent according to subsection 1
above by making a written declaration to the Sellers one month following
receipt of the consolidated interim report of the Companies (as stipulated
in (S) 3, subsection 5 below) (call option).
4. The 39,200 shares of Novento stock are evidenced by the following documents:
Seller 2 multiple share certificate No. 15999 - 23997, Seller 3 multiple
share certificate No. 23998 - 31996, Seller 4 multiple share certificate No.
1 - 7999, Seller 5 multiple share certificate No. 8000 - 15998, Seller 6
multiple share certificate No. 72796 - 79199 and 79200 - 79999.
The 19,600 shares of Multicall stock are evidenced in the registered stock
00001 and the multiple share certificates 00002 - 08000 and 28401 - 40000.
The Sellers hereby transfer the above 39,200 shares of Novento stock and
19,600 shares of Multicall stock to the Buyer by endorsement.
5. The transfer of stock in accordance with the preceding subsection 4 is
subject to the occurrence of the condition precedent from preceding
subsection 1 and the payment of the consideration from (S) 3. The Seller
shall hand the share
<PAGE>
certificates carrying a blank endorsement over to the trustee in accordance
with the attached trust agreement from Annex 1. In it the parties
-------
irrevocably instruct the trustee to hand the stock held in his custody over
to the Buyer after occurrence of the condition precedent according to
subsection 1 above and to offer payment of the consideration in accordance
with (S) 3 below.
6. The sale and transfer of stock shall be made effective from the day of
payment of the consideration in accordance with (S) 3 below (hereinafter
referred to as "transfer date") and with all rights and duties resulting
from the stock. The profit realized in the current business year, payable
to the stock sold and transferred, is solely due to the Buyer. The same
applies to any profits realized in the previous business years and not paid
out to the stockholders.
(S) 3
Consideration
1. As consideration for the 39,200 shares of Novento Stock sold with this
agreement, the Sellers shall receive:
a) A sum of DM 1,902,000 (in words: one million nine hundred two thousand
German marks); and
b) Shares of common stock held by the Buyer, the number of which is to be
defined according to subsection 5 (hereinafter referred to as "Cybernet
Stock)
2. The division of the consideration according to the preceding subsection 1
shall be effected between the Sellers 2-6 in the ratio of stock held by
them with the requirement that the Seller 2 shall be paid its full purchase
price entitlement in cash. Any cash amount beyond this amount is due to the
other Sellers in the ratio of their shares.
<PAGE>
3. As consideration for the 19,600 shares of Multicall stock sold with this
agreement the Seller 1 shall receive a sum of DM 98,000.00 (in words: eight
hundred ninety thousand German marks).
4. The preceding considerations are payable within 4 weeks from occurrence of
the condition precedent in accordance with preceding (S) 2 subsection 1.
5. The consideration according to the preceding figure 1 b) is based on the
consolidated interim report of the companies for the period ended November
30, 1999 for the months of September, October and November 1999
(hereinafter referred to as "the interim report"). The interim report shall
be established according to the principles of proper accounting (with the
requirement that receipts not received by December 10, 1999 may be
estimated) by the auditor Mr Klosterkamp in a manner that is binding to the
parties and shall then be distributed to the parties. The net sales
receipts specified in the interim report depend on the profit before
interest, taxes and amortization (hereinafter referred to as "EBITDA")
without consideration of the board of director's salaries, shall be
multiplied in a consolidated manner with the multiplicators A and B as
resulting from the scheme attached in Annex 2. This base price for the
whole enterprise shall be multiplied by 0.49 and thereafter the amount of
DM 1,902,000.00 shall be subtracted so that the value of the consideration
according to the preceding subsection 1, letter b) results and which in any
case is no higher than DM 8,000,000 (in words: eight million German marks).
This value shall be divided by the stock exchange price of the Cybernet
stock. The EURO 12.00 shall prevail or, where a smaller amount results, the
average of the relevant day closing price of the Cybernet stock (Securities
No. WP-Kenn-Nr. 906 623) at the Frankfurt Stock Exchange in the week
immediately preceding the occurrence of the precedent condition in
accordance with the preceding (S)2 subsection 1, less 20%.
6. The Buyer may have the interim report audited by Schitag Ernst & Young
Wirtschaftsprufungsgesellschaft by March 31, 2000. Where turnover figures
reduced by 10 percent due to this audit result, the consideration according
to the preceding subsection 5 shall be newly established based on the
audited interim report. Any shortfall compared with subsection 5 shall be
balanced by May 15, 2000 by returning the relevant Cybernet stock to the
Buyer. Where the average day closing price of the Cybernet stock in April
2000 is smaller
<PAGE>
than the price prevailing under the preceding subsection 5, the
consideration shall be newly determined based on this lower price and any
increase in the consideration according to this subsection 6 shall be
balanced by May 15, 2000 by transferring the relevant Cybernet stock to the
Sellers.
7. The percentage of the consideration according to the preceding subsection
1.b) shall be reduced to the extent the number of Novento AG customers on
March 31, 2000 falls short of the number of customers on November 30, 1999.
Only business customers producing a monthly turnover of at least DM 200.00
shall be taken into account. Slight deviations up to 5% shall not lead to a
reduction of the purchase price. A reduction of the consideration according
to this subsection 6 shall be balanced by May 15, 2000 by returning the
relevant Cybernet stock to the Buyer.
(S) 4
Loan Claims
1. From the loan agreements of August 27, 1998 - less DM 55.00 already paid -
October 1, 1998, January 28, 1999, March 5, 1999, June 17, 1999, August 4,
1999 from the Klodt assignment and the contract of assignment with Novento
Telecom AG dated September 2, 1999 loan claims totalling DM 728,000 are due
to the Seller from Multicall AG. As far as the shareholder loans are
concerned, notices of priority rescission have been issued. The individual
loan agreements are summarized in the loan agreement of September 2, 1999. A
copy of this loan agreement is attached as Annex 3.
-------
2. The Seller I. sells and transfers the loan claim according to subsection 1
at the purchase price of DM 728,000.00 including all rights and duties from
the loan agreements to the accepting Buyer. The transfer is subject to the
payment of the purchase price.
3. The purchase price is payable within four weeks from exercise of the option
according to (S) 2 subsection 1.
<PAGE>
(S) 5
Warranties of the Sellers
1. The Sellers warrant to the Buyer at the transfer date and at the present
day of signing this agreement:
a) The Novento and Multicall Stock sold is not subject to any charges,
subparticipations, restraints on disposal or other commitments. The
Sellers are unrestrictedly entitled to dispose of the Novento and
Multicall Stock. All agreements and approvals of the conclusion and
implementation of the agreement have been obtained. All payments into
the capital stock have been fully made.
b) Novento AG exists with the bylaws as amended on July 30, 1998 (document
No. 161/1998 of notary public Mr Bolko Seifert, Wilhelmshaven). This
agreement is complete and, with the exception of the re-formation
based on document dated August 6, 1999 of notary public Dr. Burkhard
Punder, Dusseldorf (document No. 767 for 1998P), there are no
subagreements. The non-certified extract from register from Annex 4
-------
correctly and completely contains all registration-required facts and
legal relationships, non-entered applications for the registration
court do not exist.
c) Multicall AG exists with the bylaws as amended on March 30, 1998
(document No. 63/1998 of the notary public Bolko Seifert,
Wilhelmshaven); this agreement is complete, furthermore, there are no
subsidiary agreements concerning the corporate relationship with the
exception of the re-formation based on the document of August 6, 1999
of notary public Dr. Burkhard Punder, Dusseldorf (document No. 765 for
1998P). The non-certified extract from register attached in Annex 5
-------
correctly and completely contains all registration-required facts and
legal relationships, non-entered applications for the registration
court do not exist.
<PAGE>
d) The annual reports of Novento AG and Multicall AG, for the year ended
December 31, 1998, which were handed over to the Buyer, were
established in accordance with the generally recognized principles of
proper accounting and balance sheet preparation while maintaining
balance sheet continuity by the auditors/tax consultants/lawyers
Gorler Klosterkamp Tucking, Dusseldorf. These reports for the year
1998 are adequate and complete and correctly reflect the financial
situation and the business results at the relevant balance sheet dates
and for the periods indicated. The market value of the individual
assets corresponds at least to their balance sheet figure. The
companies have no other liabilities, none threatened, than those shown
or those covered by reserves. In the period from January 1, 1999 to
the transfer date and/or the present day of signing this agreement,
the companies exclusively engaged in proper business transactions.
e) Dividends or hidden profit distributions of Novento AG or of Multicall
AG (hereinafter referred to commonly as "companies") have not been
made since the establishment of the companies.
f) The companies, except for commercial reservations of ownership, are
owners of the assets specified in the annual report for the year ended
December 31, 1998 and of the assets acquired since this balance sheet
date, except for those sold since December 31, 1998 in proper business
transactions. The assets of the companies, except for the reservations
of ownership, are their unrestricted property and are free of rights
of third parties.
g) Novento AG is the sole owner of the "Novento" brand (IR No. 706475 and
DP 398 36 906) and Multicall AG is the sole owner of the brand
"Multicall talking head communication" (IR No. 715 755 and 398 70
713), which are always free of rights of third parties.
h) The Sellers have left the Buyer all agreements essential to the
company, completely and correctly in the original or as a copy for
inspection, including the reseller agreement with Star
<PAGE>
Telecommunications GmbH of June 17, 1998, the reseller agreement with
Colt Telecom GmbH of January 21, 1999, the rental agreement Heerdter
Lohweg 89 in Dusseldorf of July 20, 1998, the rental agreement
Olympiastr. in 26419 Schortens, the loan agreements, the Klodt
commercial agent agreement, and the cooperation agreement of Novento
AG with Multicall AG dated September 1, 1998. Apart from the
agreements made available for inspection, there are no agreements
essential to the companies which are industry-untypical or are not
backed by an adequate consideration.
i) With the exception of the employment contracts of Mr Bernd Buchholz and
Mr Jochen Boekel and the known loan contracts there are no contracts
or agreements between the companies and the Sellers or persons close
to them.
k) Except for the staff agreements (commissions system) and the commercial
agent agreements, the companies have not signed any agreements with
profit- or sales-dependent remuneration, royalties etc.
l) The Sellers have made all staff agreements with the companies available
to the Buyer for inspection as a true and complete copy or in the
original. Further employments, other agreements, plant agreements or
commitments from operations do not exist. Claims from a stock option
programme against the companies do not exist at the transfer date.
m) There are no untypical guaranties, sureties or similar charges (surety
Colt for DM 30,000.00, guaranty commitments from rental agreements are
known). The companies assume no liabilities from furnishing collateral
for external commitments. The companies have given no promises of
loans.
n) There are no known public-legal restrictions that could prevent the
companies from running their operations in the way they do it now.
<PAGE>
o) At present, except for Kirchhoff versus Multicall, the companies are
conducting no litigation. Procedures against the companies before
administrative authorities or official investigations are neither
impended nor do they have to be expected to the best of one's
knowledge. The Buyer knows that presently Novento AG is withholding
sums from Star Telecom because of alleged compensation claims.
p) The companies submitted all income tax revenues properly and timely and
paid all due taxes or accumulated sufficient reserves for taxes.
Furthermore, the companies have no arrears in taxes and no tax risks.
Payments to staff for payroll tax and for contributions to legal
insurances have been adequately determined, calculated and
transferred.
q) For the companies there are no commitments outside usual business
transactions.
r) The Seller Mr Buchholz is free of rights of third parties in handling
the Multicall claim. The loan agreements are true and complete. The
priority-related notices of rescission shall be observed.
2. If one of the above warranties proves incorrect or is not complied with,
the Sellers shall place the Buyer, or after election of the Buyer, the
companies in the situation the Buyer and the companies would be in, if the
warranty were correct or had been complied with. One or several claims up
to an amount of a total of DM 100,000.00 shall not be taken into account.
3. In accordance with the above subsection 2 and regardless of it, the Sellers
shall release the companies from compensation due to liabilities in
connection with the incorrectness or violation of the above warranties.
4. The Buyer may raise any claims resulting from the above subsections 2 and 3
until December 31, 2000, furthermore any claims in connection with the
implementation of a tax field audit of the companies within six months from
receipt of the legally effective advice based on such a tax field audit. In
order to comply with the deadline, it is sufficient to inform the Sellers
of the claims in
<PAGE>
writing. After receipt of such information a one-year period of limitation
commences.
5. To the extent the Sellers are affected by a tax audit (taxes and levies) of
the companies covering the period up to the transfer date, the Buyer shall
take care that the Sellers are able to participate at their own costs and
by an authorized person who is professionally committed to a duty of
discretion. To the extent the Buyer does not appeal, the Sellers may use
the legal remedies they consider appropriate for their own account and on
behalf of the companies. In such a case the Buyer shall take care that the
Sellers are timely given all the necessary information or powers of
attorney. Any additional tax payment or other payment due to such tax audit
shall be borne by the Sellers, unless otherwise provided by this agreement.
6. A rescission shall be excluded. Furthermore, the regulation contained in
the above subsections 2 and 3 does not limit or exclude the legal claims
and rights of the Buyer.
(S) 6
Warranties of the Buyer
1. The Buyer warrants to the Sellers as of the transfer date and this day of
signing this agreement:
a) The Buyer is free to handle the Cybernet Stock without restrictions and
rights of third parties. The Sellers know that transferability of
Cybernet Stock is limited under relevant US law of negotiable
instruments, particularly since the transfer of Cybernet Stock to the
Seller is not registered with the US Securities Exchange Commission.
b) The company was duly established as a company under State of Delaware
law, it is validly existing and in "good standing". With the exception
of Cybernet Internet-Dienstleistungen AG, Germany, its subsidiaries,
Cybernet Network Services GmbH, Germany, its subsidiaries, Vianet
Telekommunikations AG, Austria, Flashnet S.P.A.,
<PAGE>
Italy, Sunweb Internet Services SIS AG, Switzerland, and its
subsidiaries, the Buyer has no subsidiaries.
c) The entire authorized capital of the Buyer consists of 50,000,000
shares of common stock of a nominal value of USD 0.001 and of
50,000,000 shares of preferred stock. At the moment of signing this
agreement, of the shares of common stock, 21,012,647 have been issued
and are outstanding, and so are 3,770,000 of the shares of preferred
stock. In accordance with the stock option plan of the Buyer, at the
time of signing this agreement, approximately 1,500,000 options have
to be issued. Furthermore, the Buyer issued warrants and convertible
bonds in accordance with Annexes 7 and 8.
d) In regard to his company law conditions the Buyer is entitled and
authorized to sign this agreement and execute it. The Buyer's board of
directors has agreed to the signing of this agreement and its
execution.
e) The Buyer made the audited annual reports of the Buyer for the year
ended December 31, 1997 and 1998 (the "annual reports") and the
unaudited interim report for the period ended June 30, 1999 (the interim
report) available to the Seller as photocopies. The annual and interim
reports were established in accordance with US-GAAP and reflect the
financial situation of the Buyer at the given transfer dates adequately.
In the period from June 30, 1999 to the transfer date, there was no
major impairment of the Buyer's operations. For the period from June 30,
1999 to the transfer date the Buyer was exclusively active in proper
business transactions.
f) The signing of this agreement and its execution
1) will not impair the Buyer's enterprise, his assets or agreements
with third parties essentially.
2) will not violate provisions of the establishing document or the
bylaws of the Buyer and
<PAGE>
3) will not violate a law or other provisions and court or official
orders
2. If one of the above warranties proves incorrect or is not complied with,
the Buyer shall place the Sellers in the situation the Seller would be in,
if the warranty were correct or had been complied with. One or several
claims up to an amount of a total of DM 100,000.00 shall not be taken into
account.
3. The Buyer may raise any claims resulting from the above subsection 2 until
December 31, 2000, furthermore any claims in connection with the
implementation of a tax field audit of the companies within six months from
receipt of the legally effective advice based on such a tax field audit. To
comply with the deadline, it is sufficient to inform the Sellers of the
claims in writing. After receipt of such information, a one-year period of
limitation commences.
4. The regulation contained in the preceding subsection 2 shall not limit or
excude the legal entitlements and rights of the Sellers.
(S) 7
Agreement on the Assignment of Stock
Both Novento AG and Multicall AG (board of directors and supervisory board) have
declared their agreement to the transfers contained in this agreement of stock
according to (S) 7 of the bylaws of the companies.
(S) 8
Prohibition to Compete
1. For the period of three years from the day of signing this agreement the
Sellers undertake to refrain from any competition in the geographical and
technical area of activity below with companies or the Buyer, particularly
from participating directly or indirectly in competing enterprises, entering
the
<PAGE>
services of a competing enterprise or promoting such an enterprise in other
ways directly or indirectly by advice or action. Geographical area of
activity as defined by this prohibition to compete is the Federal Republic
of Germany, Austria, Italy and Switzerland, technical area of activity in
the sense of this prohibition to compete is the furnishing of services of
telecommunication, particularly the recruitment of customers for fixed
network telephony and the Internet.
2. Compliance with the prohibition to compete is achieved by the payment of the
purchase price.
3. Unless mandatory provisions provide otherwise, the provisions of (S) 74 ff
HGB shall not be applied to this prohibition to compete.
4. In the event of any violation of the above prohibition to compete the
relevant Seller shall pay to the Buyer a contract penalty of DM 100,000.00.
If the violation is continued by the Buyer despite an adhortatory letter for
each additional month of violation or fraction thereof a contract penalty of
DM 100,000.00 shall be paid. The Buyer's claims to compensation of a more
substantial damage and restraint from future anti-prohibition behaviour
shall not be affected.
5. The prohibition to compete according to the above subsections 1. through 4.
shall not be applied to the Sellers 1 and 6, if and to the extent the
employment contract existing between the relevant Seller and the Buyer or
one of the companies is cancelled upon the Buyer`s prompting or that of one
of the companies - concerning Seller 1, within three years, and concerning
Seller 6 within one year - from the signing of the agreement or is
terminated in any other way, unless the Buyer or one of the companies was
entitled to cancel the employment contract extraordinarily.
<PAGE>
(S)9
Joint and Several Liability and Person Authorized to Accept Service
1. The Seller 1 is jointly and severally liable for commitments arising from
this agreement, Sellers 2 - 6 do so on a pro-rata basis. Excluded are
commitments from preceding (S) 7 (prohibition to compete). They concern the
party committing the violation.
2. The Sellers hereby irrevocably entitle
Gorler Klosterkamp Tucking, lawyers, Rosenstr. 1, 40479 Dusseldorf
to accept all declarations, particularly those concerning service, and
services in connection with this agreement.
3. The Buyer hereby irrevocably authorizes
Besner Kreifels Weber, lawyers, Widenmayerstr. 41, 80538 Munich
to accept all declarations, particularly those concerning service, and to
receive services in connection with this agreement.
(S) 10
Secrecy
The parties are committed to observe the strictest secrecy concerning the
conclusion and the contents of this agreement, unless law or this agreement
compels them to disclosure.
<PAGE>
(S) 11 Annulment, Preliminary Contract
This agreement replaces all written and oral declarations of intent issued in
connection with any contract negotiations of the parties, also where such
declarations deviate from the contents of preceding agreements
(S) 12 Costs
The costs and fees of their consultants shall be borne by the parties
themselves.
(S) 13 Applicable Law, Jurisdiction
German law shall be applied to this agreement unless the application of another
law is imperative.
Jurisdiction and place of performance in connection with this agreement is
Munich, to the extent this can be admissibly agreed.
<PAGE>
(S) 14 Severability
If individual provisions of this agreement or parts thereof should be or become
ineffective or unenforceable, the effectiveness of the other provisions shall
not be affected thereby. Instead of the ineffective or unenforceable provision a
provision shall be considered agreed upon which comes closest to the economic
purpose, particularly the intended economic purpose, of the ineffective or
unenforceable provisions. The same shall apply to any gap in this agreement.
Munich, December 2, 1999
/s/ Illegible Signature /s/ Bernd Buchholz
- --------------------------------------------- ------------------------
Cybernet Internet Services International, Inc. Bernd Buchholz
/s/ Annette Buchholz /s/ Wilfried Buchholz
- --------------------------------------------- ------------------------
Annette Buchholz Wilfried Buchholz
/s/ Brunhilde Buchholz /s/ Christiane Hesebeck
- --------------------------------------------- ------------------------
Brunhilde Buchholz Christiane Hesebeck
/s/ Jochen Boeckel
- ---------------------------------------------
Jochen Boeckel
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Exhibit 10.29.1
Sale and Transfer of Stock of Novento Telecom AG and Multicall Telefonmarketing
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AG
--
and Purchase and Assignment of Claims
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Bernd Buchholz,
resident of Am Muhlenbach 19, 40670 Meerbusch,
- hereinafter referred to as the "Seller" -
and
Cybernet Internet Services International, Inc.
a company incorporated under the law of the State of Delaware, U.S.A.
Stefan-George-Ring 19-23, 81929 Munich
- hereinafter referred to as the "Buyer" -
are hereby concluding the following agreement governing the purchase and the
transfer of stock and claims:
Preliminary remark
The Seller holds 51% of Novento Telecom AG and 100% of Multicall
Telefonmarketing AG stock and intends to sell a total of 51% of the stock
of Novento Telecom AG and 51% of stock of Multicall Telefonmarketing AG to
the Buyer. The Buyer intends to acquire 51% of stock of Novento Telecom AG
and 51% of stock of Multicall Telefonmarketing AG from the Seller.
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(S) 1
Interests held
1. Novento Telecom AG (hereinafter referred to as "Novento AG") entered into
the registration court of the Dusseldorf local court under HRB 30784, has a
registered capital stock of DM 400,000.00 divided into 80,000 shares of
registered stock in the nominal amount of DM 5.00 (hereinafter referred to
as "Novento Stock"). Of the 80,000 units of Novento Stock the Seller shall
receive a total of 40800, i.e. the multiple share certificate No. 31997 -
72795 and the stock No. 80000.
2. Multicall Telefonmarketing AG (hereinafter referred to as "Multicall AG"),
entered into the registration court of the Wilhelmshaven local court under
HRB 1349, has a capital stock of DM 200,000.00, divided into 40,000 shares
of registered stock in the nominal amount of DM 5.00 (hereinafter referred
to as "Multicall Stock"), all of which are held by the Seller.
(S) 2
Sale and Transfer
1. The Seller hereby sells his 40,800 shares of Novento Stock to the Buyer in
accordance with (S) 1 subsection 1.
The Seller hereby sells another 20,400 shares of Multicall Stock. These are
evidenced in the global certificate No. 8001 - 28400.
2. The Seller hereby transfers the 40,800 shares of Novento Stock and the
20,400 shares of Multicall Stock to the Buyer via endorsement.
3. The transfer of stock in accordance with the preceding subsection 2 is
subject to payment of the consideration under (S) 3 below. The Seller shall
hand the share certificates carrying a blank endorsement over to the
trustee in accordance with the attached trust agreement from Annex
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1. In it the parties irrevocably instruct the trustee to hand the stock
held in his custody after payment of the consideration in accordance with
(S) 3 below to the Buyer.
4. The sale and transfer of stock shall be made effective the day of payment
of the consideration in accordance with (S) 3 below (hereinafter referred
to as "transfer date") and with all rights and duties, in particular all
rights and duties resulting from the stock. The profit realized in the
current business year, payable to the stock sold and transferred, is solely
due to the Buyer. The same applies to any profits realized in the previous
business years and not paid out to the Seller.
(S) 3
Consideration
1. As consideration for the 40,800 Novento Stock sold with this agreement, the
Seller shall receive:
a) A sum of DM 1,900,000 (in words: one million nine hundred thousand
German marks); and
b) 39,412 (in words: thirty-nine thousand four hundred and twelve shares
of Common Stock) from the Buyer (hereinafter referred to as "Cybernet
Stock")
2. As consideration for the 20,400 shares of Multicall Stock sold through this
agreement, the Seller shall receive a sum of DM 102,000.00 (in words: one
hundred two thousand).
3. The total sum of DM 2,002,000 is payable into the Seller's account with
Volksbank Hannover, account No. 0581542000, bank code (BLZ) 25190001,
within four weeks from signing this agreement.
4. The 39,412 shares of the Buyer's Common Stock shall be transferred to the
Seller within the same period of time.
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(S) 4
Loan Claims
1. From the agreements of March 1, 1999, March 9, 1999 and June 23, 1999 the
Seller has loan claims amounting to a total of DM 300,000 against Novento
Telecom AG. In regard to these shareholder loans priority-related notices
of rescission have been issued. Photocopies of the individual loan
agreements are attached as Annex 2.
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2. The Seller is entitled to loan claims against Multicall Telefon Marketing
AG totalling DM 403,000.00 from the agreements of August 27, 1998, October
21, 1998, November 20, 1998 and December 21, 1998. In regard to these
shareholder loans priority-related shareholder notices have been issued.
The individual shareholder loans are attached as Annex 3.
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3. The Seller shall sell and transfer the loan claim in accordance with
subsection 1 and subsection 2 at the purchase price of DM 703,000.00
including all rights and duties from the loan agreements according to
Annexes 2 and 3 to the accepting Buyer. The transfer is subject to the
payment of the purchase price.
4. For the payment of the purchase price (S) 3 subsection 3 shall apply.
(S)5
Warranties of the Seller
1. The Seller warrants to the Buyer at the transfer date and at the present
day of signing this agreement:
a) The Novento and Multicall Stock sold is not subject to any charges,
subparticipations, restraints on disposal or other commitments. The
Seller is unrestrictedly entitled to
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dispose of the Novento and Multicall Stock. All agreements and
approvals of the conclusion and implementation of the agreement have
been obtained. All payments into the capital stock have been fully
made.
b) Novento AG exists with the bylaws as amended on July 30, 1998 (document
No. 161/1998 of notary public Mr Bolko Seifert, Wilhelmshaven). This
agreement is complete. With the exception of the trusteeships
announced to the Buyer, there are no subsidiary agreements concerning
the corporate relationships and the corporate relationship. The re-
formation concerning the agreement with Michielin & Partner GmbH of
July 20, 1998 (invoice value DM 68,905.96) has also been announced to
the Buyer. The non-certified extract from register from Annex 4
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correctly and completely contains all registration-required facts and
legal relationships, non-entered applications for the registration
court do not exist.
c) Multicall AG exists with the bylaws as amended on March 30, 1998
(document No. 63/1998 of the notary public Bolko Seifert,
Wilhelmshaven); this agreement is complete, furthermore, there are no
subsidiary agreements concerning the corporate relationship. The re-
formation concerning the agreements Kloth of June 30, 1998, VR Leasing
of December 14, 1998 and ITS Systeme Wilhelmshaven of August 18, 1998
has been announced to the Buyer. The non-certified extract from
register attached in Annex 5 correctly and completely contains all
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registration-required facts and legal relationships, non-entered
applications for the registration court do not exist.
d) The annual reports of Novento AG and Multicall AG, for the year ended
December 31, 1998, which were handed over to the Buyer, were
established in accordance with the generally recognized principles of
proper accounting and balance sheet preparation while maintaining
balance sheet continuity by the auditors/tax consultants/lawyers
Gorler Klosterkamp Tucking, Dusseldorf. These reports for the year
1998 are adequate and complete and correctly reflect the financial
situation and the business results at the relevant balance sheet dates
and for the periods indicated. The market value of the individual
assets corresponds at least to their balance sheet figure. The
companies had no other liabilities, none threatened, than those shown
or those covered by reserves. In the period from January 1, 1999 to
the transfer date and/or the
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present day of signing this agreement, the companies exclusively
engaged in proper business transactions.
e) Dividends or hidden profit distributions of Novento AG or of Multicall
AG (hereinafter referred to commonly as "companies") have not been
made since the establishment of the companies.
f) The companies, except for commercial reservations of ownership, are
owners of the assets specified in the annual report for the year
ending December 31, 1998 and of the assets acquired since this balance
sheet date, except for those sold since December 31, 1998 in proper
business transactions. The assets of the companies, except for the
reservations of ownership, are their unrestricted property and are
free of rights of third parties.
g) Novento AG is the sole owner of the "Novento" brand (IR No. 706475 and
DP 398 36 906) and Multicall AG is the sole owner of the brand
"Multicall talking head communication" (IR No. 715 755 and 398 70
713), which is always free of rights of third parties.
h) The Seller has left the Buyer all agreements essential to the company,
completely and correctly in the original or as a copy for inspection,
including the Seller agreement with Star Telecommunications GmbH of
June 17, 1998, the Seller agreement with Colt Telecom GmbH of January
21, 1999, the rental agreement Heerdter Lohweg 89 in Dusseldorf of
July 20, 1998, the rental agreement Olympiastr. in 26419 Schortens,
the loan agreements, the Klodt commercial agent agreement, and the
cooperation agreement of Novento AG with Multicall AG dated September
1, 1998. Apart from the agreements made available for inspection,
there are no agreements essential to the companies which are industry-
untypical or are not backed by an adequate consideration.
i) With the exception of the contract for services between Novento AG and
the Seller and the loan agreements according to the Annexes 2 and 3
and according to Annex 6,
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there are no contracts or agreements between the companies and the
Seller or persons close to them.
j) Except for the staff agreements (commissions system) and the commercial
agent agreements, the companies have not signed any agreements with
profit- or sales-dependent remuneration, royalties etc.
k) The Seller has made all staff agreements with the companies available
to the Buyer for inspection as a true and complete copy or in the
original. Further employments, other agreements, plant agreements or
commitments from operations do not exist. Claims from a stock option
programme against the companies do not exist at the transfer date.
l) There are no untypical guaranties, sureties or similar charges (surety
Colt for DM 30,000.00, guaranty commitments from rental agreements are
known). The companies assume no liabilities from furnishing collateral
for external commitments. The companies have given no promises of
loans.
m) There are no known public-legal restrictions that could prevent the
companies from running their operations in the way they do it now.
n) At present, except for Kirchhoff versus Multicall, the companies are
conducting no litigation. Procedures against the companies before
administrative authorities or official investigations are neither
impending nor do they have to be expected to the best of one's
knowledge. The Buyer knows that presently Novento AG is withholding
sums from Star Telecom because of alleged compensation claims.
o) The companies submitted all income tax revenues properly and timely and
paid all due taxes or accumulated sufficient reserves for taxes.
Furthermore, the companies have no arrears in taxes and no tax risks.
Payments to staff for payroll tax and for contributions to legal
insurances have been adequately determined, calculated and
transferred.
p) For the companies there are no commitments outside usual business
transactions.
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q) The Seller is free from rights of third parties in handling loan claims
in accordance with the above (S) 4 subsections 1. and 2. The loan
agreements attached in Annex 2 and 3 are true and complete.
2. If one of the above warranties proves incorrect or is not complied with,
the Seller shall place the Buyer, or after election of the Buyer, the
companies in the situation the Buyer and the companies would be in, if the
warranty were correct or had been complied with. One or several claims up
to an amount of a total of DM 100,000.00 shall not be considered.
3. In accordance with the above subsection 2 and regardless of it, the Seller
shall release the companies from compensation due to liabilities in
connection with the incorrectness or violation of the above warranties.
4. The Buyer may raise any claims resulting from the above subsections 2 and 3
until December 31, 2000, furthermore any claims in connection with the
implementation of a tax field audit of the companies within six months from
receipt of the legally effective advice based on such a tax field audit. In
order to comply with the deadline, it is sufficient to inform the Seller of
the claims in writing. After receipt of such information a one-year period
of limitation commences.
5. To the extent the Seller is affected by a tax audit (taxes and levies) of
the companies covering the period up to the transfer date, the Buyer shall
take care that the Seller is able to participate at his own costs and by an
authorized person who is professionally committed to a duty of discretion.
To the extent the Buyer does not appeal, the Seller may use the legal
remedies he considers appropriate for his own account and on behalf of the
companies. In such a case the Buyer shall take care that the Seller is
timely given all the necessary information or powers of attorney. Every
additional tax payment or other payment due to such tax audit shall be
borne by the Seller, unless otherwise provided in this agreement.
6. A cancellation of sale is excluded. Furthermore, the regulation contained
in the above subsections 2 and 3 does not limit or exclude the legal claims
and rights of the Buyer.
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(S) 6
Warranties of the Buyer
1. The Buyer warrants to the Seller as of the transfer date and this day of
signing this agreement:
a) The Buyer is free to handle the Cybernet Stock without restrictions and
rights of third parties. The Seller knows that transferability of
Cybernet Stock is limited under relevant US law of negotiable
instruments, particularly since the transfer of Cybernet Stock to the
Seller is not registered with the US Securities Exchange Commission.
b) The company was duly established as a company under State of Delaware
law, it is validly existing and in "Good Standing". With the exception
of Cybernet Internet-Dienstleistungen AG, Germany, its subsidiaries,
Cybernet Network Services GmbH, Germany, its subsidiaries, Vianet
Telekommunikations AG, Austria, Flashnet S.P.A., Italy, Sunweb
Internet Services SIS AG, Switzerland, and its subsidiaries, the Buyer
has no subsidiaries.
c) The entire authorized capital of the Buyer consists of 50,000,000
shares of common stock of a nominal value of USD 0.001 and of
50,000,000 shares of preferred stock. At the moment of signing this
agreement, of the shares of common stock, 21,012,647 have been issued
and are outstanding, and so are 3,770,000 of the shares of preferred
stock. In accordance with the stock option plan of the Buyer, at the
time of signing this agreement, approximately 1,500,000 options have
to be issued. Furthermore, the Buyer issued warrants and convertible
bonds in accordance with Annexes 7 and 8.
d) In regard to his company law conditions the Buyer is entitled and
authorized to sign this agreement and execute it. The Buyer's board of
directors has agreed to the signing of this agreement and its
execution.
e) The Buyer made the audited annual reports of the Buyer for the year
ending December 31, 1997 and 1998 (the "annual reports") and the
unaudited interim report for the
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period ending June 30, 1999 (the interim report) available to the
Seller as photocopies. The annual and interim reports were established
in accordance with US-GAAP and reflect the financial situation of the
Buyer at the given transfer dates adequately. For the period from June
30, 1999 to the transfer date the Buyer was exclusively active in
proper business transactions.
f) The signing of this agreement and its execution
1) will not impair the Buyer's enterprise, his assets or agreements
with third parties essentially.
2) will not violate provisions of the establishing document or the
bylaws of the Buyer and
3) will not violate a law or other provisions and court or official
orders
2. If one of the above warranties proves incorrect or is not complied with,
the Buyer shall place the Seller in the situation the Seller would be in,
if the warranty were correct or had been complied with. One or several
claims up to an amount of a total of DM 100,000.00 shall not be considered.
3. The Buyer may raise any claims resulting from the above subsection 2 until
December 31, 2000, furthermore any claims in connection with the
implementation of a tax field audit of the companies within six months from
receipt of the legally effective advice based on such a tax field audit. To
comply with the deadline, it is sufficient to inform the Seller of the
claims in writing. After receipt of such information a one-year period of
limitation commences.
4. The regulation contained in the above subsection 2 does not restrict or
exclude the legal claims and rights of the Buyer.
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(S) 7
Agreement to the Assignment of Stock
Both Novento AG and Multicall AG (board of directors and supervisory board) have
declared their agreement to the transfers contained in this agreement of stock
according to (S) 7 of the bylaws of the companies.
(S) 8
Prohibition to Compete
1. For the period of three years from the day of signing this agreement the
Seller undertakes to refrain from any competition in the geographical and
technical area of activity below with companies or the Buyer, particularly
from participating directly or indirectly in competing enterprises,
entering the services of a competing enterprise or promoting such an
enterprise in other ways directly or indirectly by advice or action.
Geographical area of activity as defined by this prohibition to compete is
the Federal Republic of Germany, Austria, Italy and Switzerland, technical
area of activity in the sense of this prohibition to compete is the
furnishing of services of telecommunication, particularly the recruitment
of customers for fixed network telephony and the Internet.
2. Excluded from the prohibition to compete according to the above subsection
1 are participations smaller than 5 percent in stock exchange listed
enterprises.
3. Compliance with the prohibition to compete is settled by the payment of the
purchase price.
4. Unless mandatory provisions provide otherwise, the provisions of (S) 74 ff
HGB shall not be applied to this prohibition to compete.
5. In the event of any violation of the above prohibition to compete the
Seller shall pay to the Buyer a contract penalty of DM 100,000.00. If the
violation is continued by the Buyer despite
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an adhortatory letter for each additional month of violation or fraction
thereof a contract penalty of DM 100,000.00 shall be paid. The Buyer's
claims to compensation of a more substantial damage and restraint from
future anti-prohibition behaviour shall not be affected.
6. The prohibition to compete according to the above subsections 1. through 5.
shall not be applied to the Seller, if and to the extent the employment
contract signed between the Seller and the Buyer today is cancelled upon
the Buyer`s prompting within three years from the signing of the agreement
or is terminated in any other way, unless the Buyer was entitled to cancel
the employment contract extraordinarily.
(S) 9
Person authorized to accept service
1. The Seller hereby irrevocably authorizes the lawyers
Gorler Klosterkamp Tucking, Rosenstr. 1, 40479 Dusseldorf
to accept all declarations, particularly process services, and services in
connection with this agreement.
2. The Buyer hereby irrevocably authorizes the lawyers
Besner Kreifels Weber, Widenmayerstr. 41, 80538 Munchen
to accept all declarations, particularly process services, and services in
connection with this agreement.
(S) 10
Secrecy
The parties are committed to observe the strictest secrecy concerning the
conclusion and the contents of this agreement, unless law or this agreement
compels them to disclosure.
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(S) 11 Annulment, preliminary contract
This agreement replaces all written and oral declarations of intent issued
in connection with any contract negotiations of the parties, also where
such declarations deviate from the contents of preceding agreements.
(S) 12 Costs
The costs and fees of their consultants shall be borne by the parties
themselves.
(S) 13 Applicable law, jurisdiction
1. German law shall be applied to this agreement unless the application of
another law is imperative.
2. Jurisdiction and place of performance in connection with this agreement is
Munich, to the extent this can be admissibly agreed.
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(S) 14 Severability
If individual provisions of this agreement or parts thereof should be or
become ineffective or unenforceable, the effectiveness of the other
provisions shall not be affected thereby. Instead of the ineffective or
unenforceable provision a provision shall be considered agreed upon which
comes closest to the economic purpose, particularly the intended economic
purpose, of the ineffective or unenforceable provisions. The same shall
apply to any gap in this agreement.
Munich, October 1, 1999
/s/ Illegible Signature /s/ Bernard Buchholz
____________________________________ _____________
Cybernet Internet Services International. Inc. Bernd Buchholz
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Exhibit 10.30
Framework Contract
for the Performance of Project
and Consultancy Services
between
Beam Enterprise GmbH
WilhelmstraBe 22
89073 Ulm
hereinafter known as "Beam GmbH"
and
Cybernet Internet Services AG
Stefan-Georg-Ring 19-23
81929 Munchen
hereinafter known as "Cybernet AG"
the following contract is concluded
Preliminary Remarks
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The parties to the contract intend to co-operate in the filed of Internet and
Intranet projects. Cybernet AG intends to commission Beam GmbH with Internet and
Intranet projects. Beam GmbH intends to carry out Internet and Intranet projects
for Cybernet AG.
I. Subject of the Contract
1. Beam GmbH perform projects and consultancy services to be defined in the
Internet and Intranet fields in accordance with the agreements reached between
the parties, taking the state-of-the-art technology into account and with the
greatest possible protection of the interests of Cybernet AG and with the
prudence of a diligent businessman.
2. This contract determines the framework for the co-operation between Cybernet
AG and Beam GmbH. The co-operation between Cybernet AG and Beam GmbH will be
determined by the conclusion of further contracts on an individual basis
(Individual Contracts). In the event that a provision in this Framework Contract
contradicts a provision in an individual contract, the provision in an
Individual Contract takes precedence.
II. Necessary Contents of an Individual Contract
1. The possible Individual Contracts between Cybernet AG and Beam GmbH must
contain the following items:
a) project description, in particular the performance to be provided by
Beam GmbH
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b) performance schedules for the services to be provided by Beam GmbH, to
the extent necessary also for self-contained parts of these services.
In so doing, prospective and latest points in time for the completion
of the tasks are to be agreed.
c) remuneration to be paid by Cybernet AG.
2. Beam GmbH and Cybernet AG should appoint in the Individual Contracts a point
of contact (project manager) who is responsible for information and for all
questions resulting from the fulfilment of the individual contract.
III. Participation of Beam GmbH in the Compilation and Submission of Offers
1. Beam GmbH will support Cybernet AG in the compilation and submission of
offers to Cybernet AG customers, in particular with visits to customers, offer
preparation, offer presentations to the customer and in the commercial
calculation of offers.
2. For support in accordance with the afore-mentioned subsection 1 Beam GmbH
receives a one-off payment in the sum of DM 500,000 plus VAT, due in a part
payment of DM 200,000 on 30.11.1999 and in further part payments of DM 50,000 on
31.01, 29.02, 31.03, 30.04, 31.05 and 30.06.2000. In addition, the services of
Beam GmbH are settled in accordance with the afore-going Section 1 (including
expenses, travel costs and allowances) with the remuneration envisaged in the
respective Individual Contract.
IV. Reports / Project Meetings
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1. In order to ensure successful performance of the projects, the Beam GmbH
project manager will continuously inform Cybernet AG of progress, for projects
lasting longer than one week, he will provide written reports, in which he
reports on the status of the developments. In addition a co-ordination meeting
takes place at two weekly intervals, which can be arranged as telephone reports.
2. The Beam GmbH reports should in particular provide information on the
respective status and the planned progress of the project, especially taking the
pre-defined schedules into consideration.
V. Amendments to the Performance Description
1. Amendments to the Performance Description by Beam GmbH require prior approval
in writing by Cybernet AG. Cybernet AG can demand such changes from Beam GmbH up
to acceptance of the task. This must be done, however, in writing. Beam GmbH
will carry out the changed tasks after prior co-ordination in as far as the
amendments are not demonstrably unreasonable for Beam GmbH.
2. If contractual agreements (e.g. costs, performance dates) are impacted by
changes, the parties to the contract will adapt to these agreements, taking the
greater or lesser effort involved into consideration. To the extent the parties
to the contract do not demand such an adjustment within 10 working days
respectively in writing from the other party, the changes will be carried out as
part of the existing contractual conditions.
3. Beam GmbH will inform Cybernet AG immediately after notification of a change
if tasks already performed by Beam GmbH are no longer usable as a result of the
changes.
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4. Cybernet AG can terminate the Individual Contract at any time. Tasks
completed up to the point in time of the termination are to be remunerated. The
termination does not eliminate the guarantee rights of Cybernet AG nor the
confidentiality obligations of Beam GmbH.
VI. Usufruct and Exploitation Rights, Self-Advertising by Beam GmbH
1. In as far as the respective Individual Contract contains no deviating
provisions, Beam GmbH transfers to Cybernet AG all rights to the work results
and other services provided by Beam GmbH achieved as part of the co-operation,
in particular all created rights and those still to be created in future for the
duplication, publication, or other use and exploitation, unrestricted in terms
of content, space and time, for all known usage types and also the ownership of
these work results and other services. In particular the right of processing is
transferred and for the passing on to third parties, especially companies
associated with Cybernet AG. Afore-mentioned transfers are settled by payment of
the remuneration agreed in the Individual Contract and remain unaffected by a
termination of the co-operation. The transfer of afore-mentioned rights for
types of usage becoming known will be offered by Beam GmbH exclusively to
Cybernet AG as soon as these become known at commercial prices.
2. In as far as no separate agreement has been concluded between Beam GmbH and
Cybernet AG in the Individual Contract, Beam GmbH is only entitled to use the
services performed for Cybernet AG as part of the co-operation for own
advertising purposes with the prior written permission of Cybernet AG. Cybernet
AG will fundamentally only agree to this if (i) the self-advertising of Beam
GmbH sufficiently clearly indicates that the respective task was performed by
Beam GmbH on behalf of Cybernet AG, (ii) printed and/or online advertising
contains a logo made available for this purpose by Cybernet AG and (iii) the
respective advertising means of Beam GmbH have been approved by Cybernet AG with
respect to the above-mentioned points. For every infringement of the above-
mentioned obligations by Beam GmbH,
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Cybernet AG has a right to payment of a contractual penalty of DM 10,000. The
above-mentioned obligations also continue to exist after the expiry of this
contract.
VII. Remuneration
1. The remuneration agreed in the Individual Contract comprises all services the
agreed expenses to be performed by Beam GmbH as part of the respective
individual contract and is understood to contain the valid legal VAT. VAT is to
be listed separately in the Beam GmbH invoice.
2. The payments to Beam GmbH have been agreed up to an Individual Contract total
of net DM 50,000 respectively after acceptance in as far as part-payments have
not been included. If the volume is more than DM 50,000 net, 30% is payable upon
the award of the contract, 40% after delivery and 30% after acceptance. The
payments are due within 30 days after submission of the invoice.
VIII. Delay in Performance
In as far as no other agreement has been concluded in the Individual Contract,
what applies is the following: if Beam GmbH is delayed in the performance of a
task on the grounds of negligence, Cybernet AG has the right to payment of a
contractual penalty of 1& of the order value per delayed working day, at most
however 10% of the order value. All other rights, in particular to more
extensive damages, are retained by Cybernet AG . Cybernet AG can only claim a
due contractual penalty in its relation with its customer as delay in
performance damages from Beam GmbH when (i) this contractual penalty does not
exceed the order value in the relationship between Cybernet AG and Beam GmbH and
(ii) Cybernet AG has pointed out in writing to Beam GmbH in the Individual
Contract the possible sum of the contractual penalty.
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IX. Acceptance
Cybernet AG declares after completion of the task immediately in writing its
acceptance of the tasks if these fulfil the performance description in the
Individual Contract and are free of other faults. Acceptance pre-supposes a
prior review of the tasks performed by Cybernet AG. More precise modalities of
acceptance and review may be agreed where appropriate in the individual
contract.
X. Guarantee
1. Beam GmbH guarantees that the tasks performed fulfil the requirements agreed
in the task description and there are no faults fort which Beam GmbH is
responsible.
2. The duration of the guarantee is 12 months. The guarantee period begins with
acceptance. Upon acceptance of part-tasks, the respective guarantee period
begins with the acceptance of the relevant part-task.
3. Faults recorded in the acceptance declaration and guarantee faults claimed by
Cybernet AG before the guarantee period expires are to be eliminated by Beam
GmbH at its expense in an appropriate period of time.
4. If Cybernet AG claims faults, it will notify Beam GmbH in particular of how
the faults are noticeable and provide the necessary documentation for the
elimination of the faults. Beam GmbH has to begin immediately with the
rectification of the faults. If the faults cannot be eliminated in a short
period, Beam GmbH has to - in as far as this possible and commensurate with
regard to the effects of the fault - provide a temporary makeshift solution.
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5. In as far as no other agreement is reached in the Individual Contract, the
following shall apply: if Beam GmbH is delayed in the performance of a task on
the grounds of negligence, Cybernet AG has the right to payment of a contractual
penalty of 1% of the order value per delayed working day, at most however 10% of
the order value. All other rights, in particular to more extensive damages, are
retained by Cybernet AG Section VIII, sentence applies accordingly. If faults
are not rectified with a period of five working days, Cybernet AG can set Beam
GmbH, in particular for fault rectification, a commensurate period of five days
with the reminder that they will reject the fault rectification after the period
expires. After expiry of this period Cybernet AG can choose whether to instigate
rectification of the faults at Beam GmbH's expense or to revoke the contract in
part or wholly (to rescind for failure to comply with guarantees) or whether to
abate the agreed remuneration (to reduce the price to be paid).
XI. Rights of Third Parties
1. Beam GmbH guarantees that the contractually performed tasks are free of third
party rights which exclude or restrict their use. If the contractually agreed
usage is impaired or made impossible by rights claimed by third parties, Beam
GmbH is obliged to amend or replace these contractual tasks in such a way that
they no longer affect the claimed rights of third parties yet correspond to the
contractually agreed provisions. If Beam GmbH cannot fulfil this requirement,
Section X, No. 5 shall apply accordingly.
2. In as far as no other agreement is reached in the Individual Contract, Beam
GmbH accepts the sole and, in terms of amount, unlimited liability against those
who claim there rights have been infringed. Beam GmbH is entitled and obliged to
conduct all legal disputes arising from such claims at its own expense. If
claims due to the infringement of rights are made against Cybernet AG, Beam GmbH
indemnifies Cybernet AG - irrespective of other legal claims - of all claims
(for damages) and bears all the costs incurred by Cybernet AG in such instances
(e.g. in connection with
<PAGE>
legal disputes). Cybernet AG is obliged to notify Beam GmbH immediately if such
claims are made against it due to the infringement of third party rights.
XII. Damages
Beam GmbH is liable for the damages caused in accordance with the legal
regulations - for whatever cause in law - by itself or by a person, for whom it
bears the responsibility (e.g. vicarious agent)
XIII. Confidentiality, Security and Data Protection
1. Beam GmbH has to work towards achieving, with the necessary care, that all
persons charged by it with the processing of fulfilment of this contract, take
account of the legal regulations concerning data protection and do not pass or
otherwise use information obtained from Cybernet AG to third parties. An
obligation of these persons in accordance with the required data protection laws
to secure data confidentiality has to be undertaken before they become involved
with the tasks for the first time and be demonstrated to Cybernet AG by means of
signed declarations.
2. Beam GmbH has to secure all documents and data, both person-related and
factual, provided to it in connection with the fulfilment of the contract by
Cybernet AG, so that no third party can obtain access to this information. The
prescribed security precautions for the fulfilment of such data protection
regulations are to be taken commensurately to achieve this purpose. This
obligation includes that Cybernet AG documents in the possession of Beam GmbH
have to remain locked up in the absence of the responsible members of staff.
<PAGE>
3. Beam GmbH is obliged to hand over these documents in full and without the
retention of any copies or disks or other carrier media with stored data to
Cybernet AG and to provide a statutory declaration to Cybernet AG confirming the
complete return of the data.
4. Beam GmbH has to ensure that all persons involved in the fulfilment of the
contract take into account the further security regulations of Cybernet AG,
which the latter makes available top such persons in advance of work commencing.
Beam GmbH will prove to Cybernet AG at the latter's request that all persons
involved in the fulfilment of the contract have been instructed in conforming to
the security regulations. Cybernet AG is entitled, even for a one-off
infringement of the security regulations, to demand the replacement of the
person concerned or to terminate the contract with immediate effect. Further
Cybernet AG rights remain unaffected by this.
5. Beam GmbH or persons it commissions have access, in connection with the
fulfilment of the contract, to the Cybernet AG EDP resources (program libraries,
documentation systems, databanks, etc.). These resources must be treated
carefully and commensurately; they may be neither destroyed, falsified nor used
in violation of the contract.
6. Cybernet AG can terminate the contract without notice or in part or wholly
withdraw from the contract if Beam GmbH does not fulfil its obligations in
accordance with the afore-mentioned Sub-Sections 1-4 or is negligent in their
fulfilment or infringes the security regulations intentionally or for reasons of
gross negligence.
7. In as far as is necessary, the Individual Contract ensures, as for
communications between Beam GmbH and Cybernet AG by means of the Internet, that
the afore-mentioned confidentiality, security and data protection provisions are
fulfilled commensurately.
<PAGE>
XIV. Sub-Contracts
The award of sub-contracts or contract components to third parties requires the
prior approval of Cybernet AG.
XV. Protection of the Business Relations
1. In as far as Beam GmbH performs services as sub-contractor for a prime
contractor charged therewith by Cybernet AG, Beam GmbH will accept no direct
orders from this prime contractor. This does not apply if Beam GmbH immediately
informs Cybernet AG in writing of already awarded direct orders from this prime
contractor or of existing business relations or between Cybernet AG and Beam
GmbH after completion of the contract. The above-mentioned obligation also
applies for the case that Beam GmbH is active for Cybernet AG as part of the
above-mentioned Sub-Section 3 (submission of offer and similar actions) or only
was negotiating unsuccessfully with Cybernet AG concerning a joint effort. The
protective period amounts in this case to 12 months after completion of the last
activity or negotiations.
3. For every infringement against the above-mentioned obligations, Beam GmbH
pays Cybernet AG with the exclusion of a continuation of offence a contractual
penalty of DM 50,000.
XVI. Miscellaneous
1. The place of fulfilment for the services performed by Beam GmbH can, if
required, be differentiated in the Individual Contract. The place of
jurisdiction is Munich.
<PAGE>
2. Oral supplements to this contract do not exist. Amendments and supplements to
the Framework Contract or to Individual Contracts must be made in writing. This
also applies to dispensing with the requirement of the written form. To the
extent that no other agreement exists between the parties, receipt of statements
sent by e-mail suffices to preserve the requirement of the written form.
3. To the extent parts of this contractual agreement are ineffective, the other
provisions remain unaffected by this. With respect to the invalid provisions,
the parties shall agree new provisions which most closely approximate the
economic objective, taking equitable discretion into consideration.
4. In as far as no other express agreement is reached in this contract, Beam
GmbH is only entitled after prior approval in writing from Cybernet AG to
transfer rights or obligations emanating from this contract to third parties.
Munich, 19. November 1999
/s/ (signature illegible) /s/(signature illegible)
Beam GmbH Cybernet AG
<PAGE>
Exhibit 10.30.1
Loan and Security Agreement
between
1. Mr Rolf Strehle, resident of Kreuzbergstr. 53/1, 89198 Westerstetten,
2. Mr Gerhard Schonenberger, resident of Wannenmacherstr. 11, 89160 Tomerdingen
- hereinafter individually or collectively referred to as "Borrowers" -
and
3. Cybernet Internet-Dienstleistungen AG
Stefan-George-Ring 19-23, 81929 Munchen
- hereinafter referred to as Lender -
Preliminary remark
The Borrowers are shareholders of Beam Enterprise GmbH. The Beam Enterprise GmbH
and the Lender signed the framework agreement which is attached as photocopy in
Annex I (hereinafter referred to as "framework agreement") concerning the
provision of project and consultancy services. With regard to this framework
agreement the Lender shall grant the Borrowers a loan on the funding of Beam
Enterprise GmbH in accordance with the following provisions:
I.
Loan
1. The Lender shall grant the Borrowers a loan of up to DM 1,450,000.00 (in
words: one million four hundred fifty thousand German marks).
2. The loan serves the funding of Beam Enterprise GmbH in the form of
shareholder loans. Therefore, the Lender may pay out the loan directly to
the Enterprise GmbH, unless the Borrower has given a different instruction
to the Lender in writing.
3. The loan shall be paid in the following manner: a partial amount of DM
200,000.00 on January 31, 2000 and partial amounts of DM 250,000 on February
29, March 31, April 30, May 31 and June 30, 2000.
<PAGE>
4. The payout rates according to the preceding subsection 3 and according to
the promised loan according to the preceding figure 1 shall be reduced in
the amount in which Cybernet AG makes payments in the period from January 1
to June 30, 2000 (net without sales tax) to Beam GmbH according to the
framework agreement or in corresponding individual agreements.
II.
Interest
1. The disbursed loan amount shall be without interest until June 30, 2000 and
thereafter an interest rate of nominal 3.50% (three and a half percent)
shall be paid.
2. The interest accrued shall be payable on December 31, 2000, June 30, 2001,
and on June 30, 2002.
III.
Term, cancellation, repayment
1. The loan amount payable according to the preceding figure I.4 shall be
repaid to the Lender on June 30, 2002. The Lenders shall be discharged DM
500,000.00 of the repayment amount, if the Lender, in the period from
January 1, 2000 to June 30, 2000 does not entrust Beam Enterprise GmbH with
accountable individual contracts in accordance with the framework agreement
totalling DM 500,000.00.
2. The loan may also be redeemed prematurely.
3. The right of cancellation for cause shall not be affected. The cancellation
of the loan amount shall be made in writing.
4. Where the Lender is in default of the loan repayment, the Lender shall owe
default interest of 8% (eight percent) per year. Claiming another default-
related damage remains unaffected.
IV.
Security agreement
1. For safeguarding all existing and future - also conditional or time-limited
- claims which the Lender is entitled to against the Borrowers from this
loan agreement, the Lenders hereby assign the claims from subsection 2 below
to the Lender. The Lender hereby accepts the assignment.
<PAGE>
2. The subject of this security and assignment agreement are all claims of the
Borrowers against Dr. Hubert Besner, Widenmayerstr. 41, 80538 Munich
(hereinafter referred to as "trustee") for transfer and release of a total
of 17,021 shares of common stock of Cybernet Internet Services
International, Inc. (hereinafter individually or collectively referred to as
"shares") according to the pooling and trust agreements attached as
photocopies in Annex 2 and 3 and in the amending agreement attached as copy
in Annex 4.
3. The Lenders warrant that their entitlement to dispose of claims included in
this assignment is unrestricted, particularly that the claims they assigned
to the Lender have not already been signed to third parties and that rights
of third parties to the claims do not exist.
V.
Utilization of collateral
1. The Lender shall not collect the claims assigned to him until the Lenders
are one month in default of repayment of the secured claims despite a letter
of caution and a deadline set. The Lender may use the shares obtained by
collecting the debts in order to cover the claims secured by assignment,
i.e. by imputation at the daily rate of the Frankfurt Stock Exchange or by
setting off the disposition gain obtained by selling at the Frankfurt Stock
Exchange.
2. The Lenders may instruct the trustee to sell shares for their account on a
stock exchange at the daily rate and to pay out the relevant disposition
gain to the Lender as a means of redeeming the loan. The Lender may object
to such a utilization, if he accepts the shares at the Frankfurt Stock
Exchange as completion rather than loan redemption.
VI.
Retransfer and release of collateral
1. After covering the claims secured by assignment, the Lender shall retransfer
to the Borrowers the claims assigned and/or shares received or proceeds
collected.
2. The Lender is obliged, as appears just, to retransfer any time at the
request of the Borrowers the claims assigned and/or shares received or
proceeds collected any time, if the Lender no longer, not only temporarily,
needs them.
<PAGE>
VII.
Joint and several obligation
The Borrowers are jointly and severally liable as debtors for all commitments
arising from or in connection with this agreement.
VIII.
Severability
1. This agreement and any other contracts and statements in connection with it
shall be construed in a way that primarily takes into account the purpose of
this agreement as expressed in the preamble.
2. Where single provisions of this argent are fully or partly invalid or void
and unenforceable or should there be a gap in this agreement, the validity
of the other provisions shall not be affected. In lieu of the invalid or
void or unenforceable provision or for filling the gap that reasonable
provision shall be agreed which within the scope of what is legally
admissible is closest to the economic result which the parties sought
through the invalid or unenforceable provision and what according to the
sense and purpose of the agreement they would have primarily sought before
resorting to the legal provisions, had they considered the unregulated
point; it is helpful to agree on it and lay it down in writing.
Munich, November 10, 1999
/s/ Rolf Strehle /s/ Illegible Signature
- -------------------------- -----------------------------------
(Rolf Strehle) Cybernet Internet-Dienstleistungen AG
/s/ Gerhard Schonenberger
- --------------------------
(Gerhard Schonenberger)
<PAGE>
Exhibit 10.31
CERTIFIED TRANSLATION FROM GERMAN
---------------------------------
STOCK PURCHASE AGREEMENT
------------------------
between
Mr Jurg Heim, residing in Tramstrasse 193, 8050 Zurich, Switzerland
Mr Marco Samek, residing in Zelgistr. 30, 8046 Zurich, Switzerland
- in the following referred to as the "Sellers", individually or
collectively -
and
Cybernet Internet Services International, Inc.
a corporation incorporated under the law of Delaware, U.S.A.
Stefan-George-Ring 19-23, 81929 Munich
- in the following referred to as the "Buyer" -
the following
STOCK PURCHASE AGREEMENT
is signed:
PRELIMINARY REMARK
The Sellers hold all stock in the Sunweb Internet Services Internet SIS AG (in
the following referred to as "Sunweb AG") which is based in Zurich and has a
registered and liberalized stock capital totalling CHF 500,000.00 (Swiss francs,
five hundred thousand), which - prior to the closing - will be increased to CHF
1,100,000.00 (Swiss Francs, one million one hundred thousand), divided into
1,100 registered shares of stock at CHF 1,000.00 (in the following referred to
as "Sunweb stock").
The Sellers intend to sell the Sunweb stock to the Buyer and the Buyer intends
to acquire the Sunweb stock from the Sellers
<PAGE>
according to the terms and conditions of this Stock Purchase Agreement (in the
following referred to as "Agreement"), with 560 shares of the Sunweb stock to be
sold immediately and 540 shares of Sunweb stock to be sold for a specified
period of time as put and call options by way of unilateral statements by the
Sellers or the Buyer.
SECTION 1
SALE AND PURCHASE OF 560 SHARES OF SUNWEB STOCK
1.1 Sale and purchase. The Sellers hereby sell to the Buyer and the Buyer
------------------
hereby buys from the Sellers a total of 560 shares of Sunweb stock, i.e.:
Mr Jurg Heim 280 shares of Sunweb stock
Mr Marco Samek 280 shares of Sunweg stock
1.2 Remuneration. At the closing (as stated in 2.1 below) the Sellers shall
-------------
receive a remuneration for the sale and transfer of the 560 shares of
Sunweb stock of CHF 1,477,000 (Swiss francs, a million four hundred forty-
six thousand) and 25,000 shares of common stock with a par value of US$
0.001 of the Buyer's (in the following referred to as "Cybernet stock").
The 25,000 shares of Cybernet stock will be issued to the pooling trustee
(as stated in section 2.2. b) below), i.e. 12,500 shares of Cybernet stock
in favour of Jurg Heim and 12,500 shares of Cybernet stock in favour of
Marco Samek.
1.3 Transfer of Stock, Payment. At the closing 560 shares of Sunweb stock will
---------------------------
be transferred and surrendered from the Sellers to the Buyer. The Buyer
will transfer and surrender i) 25,000 shares of Cybernet stock to the
pooling trustee and ii) the Sellers will be handed a cheque for CHF
1,477,000 (Swiss francs, a million four hundred forty-six thousand).
1.4 Funding of Sunweb AG. At the closing the Buyer shall sign an agreement with
---------------------
Sunweb AG for the funding of further investments, working capital and
liabilities by the Buyer (in the following referred to as "funding"). The
amount of funding is governed by a business plan, which Sunweb AG and the
Buyer shall establish prior to the closing, and is granted as a loan
bearing an interest rate of (8%) per year.
<PAGE>
SECTION 2
CLOSING OF 560 SHARES OF SUNWEB STOCK
2.1 Closing. To perform the transactions provided for in this Agreement
--------
concerning the 560 shares of Sunweb stock, on March 31, 1999, or on some
other mutually agreed date, a closing (in the following referred to as
"closing") shall be held in the Buyer's office rooms (in the following
referred to as "closing date").
2.2 Closing Criteria for the Buyer. To perform the transactions contemplated by
--------------------------------
this Agreement, the Sellers shall meet the criteria below at the closing:
a) Transactions. The Sellers shall transfer and surrender 560 shares of
-------------
Sunweb stock to the Buyer. The Sellers have issued all statements
required for the transfer of Sunweb stock to become effective.
b) Pooling Trust Agreement. The Sellers signed a pooling trust agreement
-----------------------
(in the following referred to as "pooling trust agreement") with Mr
Michael Ebinger, lawyer and notary, (in the following referred to as
pooling trustee) according to Exhibit 1to the effect that the 25,000
shares of Cybernet stock are held by the pooling trustee for the
Sellers and thus may not be sold until released by the pooling trustee.
The release by the pooling trustee shall be performed in the order of
thirty-three percent (33%) one year after the closing date, in the
order of further thirty-three percent (33%) two years after the closing
date and in the order of the remaining thirty-four percent (34 %) three
years after the closing date.
c) Consents and Approvals. All approvals or consents from third parties
-----------------------
required for the performance of transactions have been obtained.
d) Representations and Warranties. The representations and warranties of
-------------------------------
Sellers contained in this Agreement will be true, correct and complete
as of the closing date.
e) No Action. No suit, action, temporary injunction or other action
---------
before any court or regulatory authority will be pending or threatened
which would obstruct consummation of any of the transactions
contemplated by this Agreement, cause any of the transactions
contemplated by this Agreement to be rescinded following consummation
or adversely affect the assets
<PAGE>
or the operation of Sunweb AG or of Sunweb GmbH (as stated under 5.1
below).
f) Due Diligence Review. The Buyer completed the diligence review of
--------------------
Sunweb AG and Sunweb GmbH which had to be completed by March 31, 1999
to his satisfaction.
g) Business Plan. Sunweb AG and the Buyer will have established the
-------------
business plan ("business plan")by March 31, 1999.
h) Employment Agreements with Jurg Heim and Marco Samek. Sunweb AG
executed Employment Agreements with Mr Jurg Heim and Mr Marco Samek
which run for at least three years providing for a basic salary of CHF
150,000 each and a management bonus of up to CHF 30,000 per year of
30,000 options to Cybernet stock at the price valid on the day
preceding the signing of this Agreement plus another 15,000 shares of
options to Cybernet stock in early 2000, if Sunweb AG realizes turnover
proceeds of more than CHF 4,000,000 (four million) in the fiscal year
from January 1 to December 31, 1999 i) realizing the profit defined in
the business plan or ii) not exceeding the loss.
i) Framenet GmbH Agreements. All agreements of Framenet GmbH, the subject
------------------------
of which are the services of Sunweb AG or Sunweb GmbH, have been
transferred to Sunweb AG or Sunweb GmbH. Where this is not possible,
new equivalent agreements were signed by Sunweb AG.
2.3 Buyer's Criteria for the Sellers. The Sellers require that, at the closing,
---------------------------------
the Buyer meet the following criteria for the performance of the
transactions contemplated by this Agreement:
a) Transactions. The Buyer shall i) transfer and hand over 25,000 shares
-------------
of Cybernet stock to the pooling trustee and i) a cheque for CHF
1,477,000 to the Sellers. The Buyer made all representations required
for the transfer of Cybernet shares.
b) Consents and Approvals. All third party consents or approvals required
----------------------
to perform the transactions have been received.
c) Warranties. The Buyer's warranties contained in this Agreement are
-----------
correct and complete as of the closing date.
<PAGE>
d) No Action. No suit, action, temporary injunction or other action
----------
before any court or regulatory authority will be pending or threatened
which would obstruct consummation of any of the transactions
contemplated by this Agreement, cause any of the transactions
contemplated by this Agreement to be rescinded following consummation
or adversely affect the assets or the business of the Buyer.
e) Due Diligence Review. The Sellers completed the diligence review of
---------------------
Sunweb AG and Sunweb GmbH which had to be completed by March 31, 1999
to their satisfaction.
g) Employment Agreements with Jurg Heim and Marco Samek. Sunweb AG
-----------------------------------------------------
executed Employment Agreements with Mr Jurg Heim and Mr Marco Samek
which run for at least three years providing for a basic salary of CHF
150,000 each and a management bonus of up to CHF 30,000 per year of
30,000 options to Cybernet stock at the price valid on the day
preceding the signing of this Agreement plus another 15,000 shares of
options to Cybernet stock in early 2000, if Sunweb AG realizes
turnover proceeds of more than CHF 4,000,000 (four million) in the
fiscal year from January 1 to December 31, 1999 i) realizing the
profit defined in the business plan or ii) not exceeding the loss.
h) Funding. Sunweb AG and the Buyer signed an Agreement governing the
--------
funding.
2.4 Board of Directors of Sunweb AG. Immediately after the closing, Mr Maurus
--------------------------------
Duelli will resign his post as Member of the Board of Directors of Sunweb
AG and will appoint Mr Andreas Eder as a Member of the Board of Directors
of Sunweb AG.
<PAGE>
SECTION 3
SALE AND PURCHASE OF 540 SHARES OF SUNWEB STOCK
3.1 Purchase and Sale. In accordance with the put option of sections 3.2 and
------------------
3.3 below the Sellers hereby sell a total of 540 shares of Sunweb stock to
the Buyer, i.e.
Mr Jurg Heim 270 shares of Sunweb stock
Mr Marco Samek 270 shares of Sunweb stock
3.2 Sellers' Put Option. The Sellers may produce the put option in accordance
--------------------
with section 3.1 above by a written statement to the Buyer. The written
statement shall be submitted to the Sellers within one month after receipt
of the financial statement of Sunweb AG (as specified under section 3.5
below) for the years 1999, 2000 or 2001 ending December 31. Prior to the
receipt of the relevant financial statement of Sunbweb AG by the Sellers,
the put option may not be produced.
3.3 The Buyer's Call Option. The Buyer may produce the put option according to
------------------------
section 3.1 above by a written statement to the Buyer. The written
statement shall be submitted to the Sellers within one month after receipt
of the financial statement of Sunweb AG (as stated in section 3.5 below) by
December 31, 2001. Prior to receipt of the financial statement of Sunweb AG
for the year ending December 31, 2001 by the Sellers, the put option cannot
be produced.
3.4 Remuneration. For the option closing (as indicated in section 4.1 below),
-------------
the Sellers, as remuneration for the sale and transfer of 540 shares of
Sunweb stock, receive a number of Cybernet stock to be determined according
to 3.5 below. The Cybernet stock is issued to the pooling trustee, i.e.
fifty percent (50%) of the Cybernet stock in favour of Jurg Heim and fifty
percent (50%) of Cybernet stock in favour of Marco Samek.
3.5 Stock Formula. The remuneration is based on the relevant financial
--------------
statement of Sunweb AG for the fiscal year ending December 31, which
precedes an efficient option statement according to the preceding section
3.2 or 3.3. The relevant financial statement shall be produced and audited
in accordance with the General Accepted Accounting Principles (in the
following referred to as "GAAP"). Subsidiaries of Sunweb AG shall be
included according to the GAAP consolidation principles. The turnover
proceeds specified in the relevant financial statement shall - dependent
upon the net profit or net loss (before income taxes) - be multiplied by a
factor
<PAGE>
determined in the scheme attached to exhibit 2. This basic price will then
have to be multiplied by 49% to account for the whole enterprise, resulting
in the equivalent of the 540 shares of Sunweb stock. This equivalent shall
be divided by the price of the Cybernet stock. The closing price at the
Frankfurt Stock Exchange which immediately follows receipt of a valid
option statement according to sections 3.2 or 3.3 above by the Sellers or
the Buyer shall be the qualifying price. The number of Cybernet stock
established in this way constitutes the remuneration for the 540 shares of
Sunweb stock according to section 3.4 above.
3.6 Transfer of Stock. At the option closing 540 shares of Sunweb stock shall
------------------
be transferred and handed over from the Sellers to the Buyer. The Buyer
shall transfer and hand over the number of shares of Cybernet stock
determined according to section 3.5 above to the pooling trustee.
3.7 Securing the Option Exercise. At the closing date the Sellers, in order to
------------------------------
safeguard their option exercise, shall transfer their 540 shares of Sunweb
stock to Mr Michael Ebinger, lawyer and notary (in the following referred
to as "escrow" agent") with the irrevocable instruction to handle
exclusively the 540 shares of Sunweb stock according to the requirements of
this Agreement.
SECTION 4
CLOSING OF 540 SHARES OF SUNWEB STOCK
4.1 Option Closing. The parties shall hold a closing (in the following referred
---------------
to as "closing" )in the office rooms of the Buyer's to complete the
transactions provided in this Agreement concerning the 540 shares of Sunweb
stock. The option closing shall take place on a day agreed jointly by the
parties (in the following referred to as "option closing date"), in any
case within one month after occurrence of the put option according to
section 3.2. or 3.3 above.
4.2 Buyer's Criteria for the Option Closing. The Sellers shall meet the
----------------------------------------
following Buyer's criteria in order to perform the transactions
contemplated by this Agreement.
a) Transactions. The escrow agent shall transfer and hand over 540 shares
-------------
of Sunweb stock to the Buyer. The escrow agent shall make all the
necessary
<PAGE>
statements to make the transfer of Sunweb activities successful.
b) Pooling Trust Agreement. The Sellers signed a pooling trust agreement
------------------------
with the pooling trustee in accordance with exhibit 1, to the effect
that the number of shares of Cybernet stock determined according to
section 3.5 above are held on behalf of the Buyers and thus Cybernet
shares of stock may not be sold until released by the pooling trustee.
The release by the pooling trustee shall be based on a volume of
thirty-three percent (33%) one year after the option closing date, to
be followed by a volume of another thirty-three percent (33%) two
years after the option closing date and the remaining volume of
thirty-four percent (34%) three years after the option closing date.
c) Consents and Approvals. All consents and approvals by third parties
-----------------------
required to complete the transactions have been received.
d) No Action. No suit, action, temporary injunction or other action before
----------
any court or regulatory authority will be pending or threatened which
would obstruct consummation of any of the transactions contemplated by
this Agreement, cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or adversely affect
the assets or the operation of Sunweb AG or its subsidiaries.
4.3 Sellers' Criteria for the Option Closing. To perform the transactions
-----------------------------------------
provided for in this Agreement, the Buyer shall meet the Sellers' criteria
below at the closing:
a) Transactions. The Buyer shall transfer and surrender the number of
-------------
Cybernet shares of stock determined according to section 3.5 to the
pooling trustee. The Buyer has issued all statements required for the
transfer of Cybernet shares of stock to become effective.
b) Consents and Approvals. All third party approvals and consents required
-----------------------
for the performance of transactions have been obtained.
c) No Action. No suit, action, temporary injunction or other action before
----------
any court or regulatory authority will be pending or threatened which
would obstruct consummation of any of the transactions contemplated by
this Agreement, cause any of the transactions contemplated by this
Agreement to be rescinded
<PAGE>
following consummation or adversely affect the assets or the operation
of Sunweb AG.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers represent and warrant to the seller:
5.1 Corporate Organization and Good Standing. The corporation was duly
-----------------------------------------
incorporated under the laws of Switzerland on October 7, 1998 via public
charter issued by the notary lic. iur. Michael Ebinger (document No.
55/1998) and registered in the Commercial Register of the Canton of Zurich,
corporation number CH-020.3.021.274 -6 on November 13, 1998. Sunweb AG has
been validly existing with by-laws as of October 7, 1998 (document No.
55/1998 of the notary lic. iur. Michael Ebinger); these by-laws are
complete, there are no subsidiary agreements concerning the corporate
organization and standing, except for the stockholders' binding agreement
of October 8, 1998. Profit distributions have not been performed and
decided since the establishment of the corporation. With the exception of
Sunweb GmbH ("Sunweb GmbH") - registered in the Commercial Register of the
Canton of Zurich, corporation number CH-020.4.018.318-8, the shares of
which amount to a par value of CHF 20,000 in total and are held by Sunweb
AG - Sunweb AG has no subsidiaries.
5.2 Capital Structure. The entire authorized capital stock of Sunweb AG is CHF
------------------
500,000.00 and will be increased to CHF 1,100,000.00 prior to the closing
and will then be divided up into 1100 shares of par value common stock of
CHF 1,000 each. Sunweb AG neither issued any other shares of stock nor any
other shares nor rights to Sunweb AG nor is it under a duty to issue stock
or other shares or rights to Sunweb AG. The Sunweb shares of stock are
validly issued, fully paid and are not subject to any obligations calling
for additional payments. The Sunweb shares of stock are not subject to any
strains, subquotas, restrictions on disposal nor any other strings. The
Sellers are entitled to unlimited disposal of Sunweb stock.
5.3 Interim Financial Statements. Attached as Exhibit 3 are the interim
-----------------------------
financial statements of Sunweb AG as of December 31, 1998 and of Sunweb
GmbH of December 31, 1998 (the interim financial statements).These interim
financial statements are true and complete to the personal knowledge of the
Sellers and correctly reflect the financial position and the business
results of Sunweb AG and Sunweb GmbH as of the respective dates and for the
specified period of time to the personal knowledge of the Sellers.
<PAGE>
The market value of the individual assets corresponds at least to their
balance sheet value. Sunweb AG and Sunweb GmbH have no other liabilities,
nor any threatened ones than those shown or covered by reserves. Sunweb AG
and Sunweb GmbH are the owners of the assets contained in the interim
financial statements and of the assets acquired since the respective date,
except for those sold after the respective date in the course of correct
business transactions. Sunweb AG and Sunweb GmbH own these assets which are
without limitation and free from the rights of third parties.
5.4 No Material Adverse Effect on Business. In the period leading up to the
---------------------------------------
closing date no material adverse effect of the operations of Sunweb AG and
Sunweb GmbH shall occur. In the period leading up to the closing date
Sunweb AG and Sunweb GmbH will exclusively engage in normal business
affairs.
5.5 Filings, Consents and Approvals. In order to sign this Agreement and to
--------------------------------
perform the transactions provided in this Agreement and to continue to
manage the affairs of Sunweb AG and Sunweb GmbH, no filings, consents or
approvals other than those shown in Exhibit 4 are required.
5.6 Noncontravention. Neither the signing of this Agreement nor the execution
-----------------
of the transaction provided in this Agreement will:
1) Cause a material adverse effect on the operation of Sunweb AG and
Sunweb GmbH, their assets or their agreements with third parties.
2) Violate any provisions of the certificate of incorporation or the
by-laws of Sunweb GmbH; or
2) Violate any law or other provisions or any orders from courts or
regulatory authorities.
5.7 Litigation. Sunweb AG and Sunweb GmbH are not party to any litigation. To
-----------
the Sellers' knowledge there are not any disputes threatened.
5.8 Material Agreements. All material agreements concerning Sunweb AG and
--------------------
Sunweb GmbH are attached in Exhibit 5 as true and complete photocopies.
With the exception of the agreements attached as exhibit 5, Sunweb AG and
Sunweb GmbH are not party to
<PAGE>
1) Agreements governing the purchase, sale, leasing or rent of material
assets;
2) Long-term debt relationships of any kind, particularly no rental or
licensing agreements;
3) Agreements with profit- or turnover-related remuneration, royalties
etc. or commercial agents' or similar agreements;
4) Employment or consulting agreements;
5) Loan or credit arrangements and guaranties, sureties or similar
obligations. Sunweb AG and Sunweb GmbH are not liable for any
sureties covering third party obligations;
6) Agreements or obligations concerning the restriction of the
operation of Sunweb AG or Sunweb GmbH;
7) Agreements or commitments outside the ordinary course of business;
8) Agreements concerning a joint venture, the establishment of a
corporation or comparable agreements; or
9) Agreements to act on behalf of Sunweb AG.
The agreements attached as Exhibit 5 are valid and there are no material
violations concerning the agreements attached as Exhibit 5. Agreement
terminations or cancellations by third parties, in particular with respect
to the signing and execution of this Agreement are not to be expected.
5.9 Intellectual Property. Exhibit 6 contains a true and complete list of the
----------------------
intellectual property ("intellectual property") which is owned and used by
Sunweb AG and Sunweb GmbH. Exhibit 6 further contains true and complete
copies of all licensing agreements connected to the intellectual property,
in as far as Sunweb AG or Sunweb GmbH are the licensor or licensee. The use
of intellectual property by Sunweb AG or Sunweb GmbH, in particular after
signing and executing this Agreement, does not violate the rights of any
third parties. With the exception of the agreements shown as Exhibit 6,
Sunweb AG and Sunweb GmbH have no obligations to pay licensing fees.
<PAGE>
5.10 Permissions by Regulatory Authorities. Sunweb AG and Sunweb GmbH have
--------------------------------------
received all permissions under public and private law as well as
franchises and/or licences to conduct their operations as is currently
being done. There are no procedures, neither against Sunweb AG nor against
Sunweb GmbH, before administrative authorities or investigative procedures
by authorities pending or to be expected.
5.11 Taxes. Sunweb AG and Sunweb GmbH filed all income tax returns correctly
-----
and as scheduled and paid all due taxes or established adequate reserves
for taxes. Apart from those, Sunweb AG and Sunweb GmbH have no arrears in
taxes and carry no tax risk. The payments payable to staff members for
taxes or social services were correctly determined, charged and
transferred.
5.12 Employees. Exhibit 7 contains true and complete copies including the names
----------
and addresses of all employment and consulting agreements signed with
Sunweb AG and Sunweb GmbH. Further employments, other agreements, pension
plans or pension assurances, shop agreements or obligations from
operations do not exist. Employees' vacation entitlements dating from the
period before January 1, 1999 do not exist.
5.13 Insurance Policies. Set forth in Exhibit 8 is a true and complete list of
-------------------
all insurance policies of Sunweb AG and Sunweb GmbH.
5.14 Agreements with Stockholders. Except for the agreements listed in Exhibit
-----------------------------
9 there are no agreements or contracts between Sunweb GmbH and the Sellers
or persons close to them and affiliated enterprises respectively.
<PAGE>
SECTION 6
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers:
6.1 Corporation. The Buyer is a corporation duly incorporated under the law of
------------
the State of Delaware, validly existing and in Good Standing. Except for
Cybernet Internet-Dienstleistungen AG, Germany, its subsidiaries and Vianet
Telekommunikation AG, Osterreich, the Buyer has no subsidiaries.
6.2 Capitalization. The entire authorized share capital consists of 50,000,000
---------------
shares of common stock with a par value of USD 0.001 and 50,000,000 shares
of preferred stock. At the moment of signing this Agreement, of the shares
of common stock, 119,062,138 are issued and outstanding, of the shares of
preferred stock, 6,360,000. According to the Buyer's stock option plan, at
the moment of signing this Agreement approximately 700,000 options are
issued.
6.3 Corporate Rights. In terms of his corporate situation the Buyer is entitled
-----------------
and authorized to sign this Agreement and execute the transactions included
in this Agreement. The Board of Directors of the Buyer has consented to the
conclusion of this Agreement and to the transactions to be executed under
this Agreement.
6.4 (Interim) Financial Statements. Exhibit 10 contains the audited financial
-------------------------------
statements of the Buyer for the years ending December 31, 1996 and 1997
(the "financial statements") and a non-audited interim financial statement
for the period ending September 30, 1998 (the "interim financial
statement"). The (interim) financial statements are in accordance with GAAP
and present fairly the financial condition of the Buyer as of the
respective dates indicated. In the period from September 30, 1998 to the
closing date no material adverse effect on the Buyer's operations have
occurred. In the period from September 30, 1998 to the closing date the
Buyer has exclusively engaged in the normal conduct of affairs.
6.5 Noncontravention. The signing of this Agreement and the performance of the
-----------------
transaction provided in this Agreement will:
1) Have no material adverse effect on the Buyer's operations, his
assets or his agreements with third parties;
<PAGE>
2) Violate provisions of the articles or certificate of incorporation
or of the by-laws of the Buyer
Or
3) Violate any law or any other provision or regulation of any court
or governmental or regulatory authority;
6.6 Litigation. The Buyer is not party to any dispute. And the Buyer does not
-----------
know of any disputes threatened.
6.7 Filings, Consents and Approvals. Except for any filings required by
--------------------------------
applicable laws and those shown in Exhibit 11, no filings, consents or
approvals are required for the Buyer's signing of this Agreement and his
consummation of the transactions contemplated by this Agreement.
SECTION 7
LEGAL CONSEQUENCES OF WARRANTY VIOLATIONS
7.1 Restitution in Kind or Compensation. Whenever warranties, representations,
-------------------------------------
obligations or agreements are misrepresented or violated, the party which
violated or misrepresented the warranties, assurances, obligations or
agreements contained in this Agreement shall place the other party -
including Sunweb AG or Sunweb GmbH, if a misrepresentation or violation was
committed by the Sellers -in the position the other party, if necessary
Sunweb AG or Sunweb GmbH, would hold, had the warranty or representation
been right or had it not been violated or had the obligations been
fulfilled. At the other party's discretion this duty of restitution shall
be performed by way of restitution in kind or by compensation.
7.2 Indemnification from Liabilities. Regardless of the provision of the
---------------------------------
preceding section 1. The Sellers shall indemnify Sunweb AG and Sunweb GmbH
in respect of claims from liabilities in connection with misrepresentations
or violations of the preceding warranties or representations.
7.3 Statute of Limitations. The parties may raise any claims arising from the
-----------------------
preceding items 7.1 and 7.2 within one year from the closing date,
furthermore claims from the performance of an external tax audit with
Sunweb AG or Sunweb GmbH within six months from the receipt of the valid
advice based on such an external tax audit. To meet
<PAGE>
the deadline, it will suffice, if the other party is informed in writing
about the claims. After receipt of such a communication, a one-year period
of limitation shall start.
7.4 Legal Claims. By the regulation of the preceding sections 7.1 to 7.3 any
-------------
legal claims will neither be restricted nor excluded.
SECTION 8
SELLERS' PROHIBITION OF COMPETITION
8.1 Object and Length of Prohibition of Competition. The Sellers undertake to
------------------------------------------------
refrain - for the period of three years from the closing date - from
engaging in any competition in the existing area of activity, both in terms
of space and subject matter, of Sunweb AG and Sunweb GmbH, with it or the
Buyer, particularly from directly or indirectly participating in
competitive enterprises, from entering in the services of a competitive
enterprise or promoting such an enterprise directly or indirectly by advice
or action. An area of activity in terms of space, as defined by this
prohibition of competition are the Federal Republic of Germany, Austria and
Switzerland, subject matter, as defined by this prohibition of competition
are telecommunication services and solutions. Compliance with the
prohibition of competition shall be deemed performed after payment of the
purchase price. The capital interest in enterprises quoted on the stock
exchange, as far as participation is less than one percent (1%) will not be
affected by the above prohibition of competition.
8.2 Legal Consequences of Violations. In the event of any violation of the
---------------------------------
above prohibition of competition the Seller who commits the violation shall
pay a contractual penalty of CHF 100,000 to the Buyer. If the violation is
continued by the Seller despite a written warning notice, a contractual
penalty of CHF 20,000.00 shall be paid for each further fraction of a month
of violation. The Buyer's rights to compensation of any further damage and
to refraining from any conduct contrary to the regulation shall not be
affected.
<PAGE>
SECTION 9
MISCELLANEOUS
9.1 Several Buyers. Any statements made in connection with this Agreement by
---------------
the Sellers vis-a-vis the Buyer can only be made by producing an effect on
all Sellers. For the commitments arising from this Agreement the Sellers
are liable collectively.
9.2 Effectiveness of Representations. Each party may rely on the
---------------------------------
representations and warranties of the other party. This rule shall apply
regardless of the audits made or omitted by one party.
9.3 Termination. This Agreement may be terminated prior to the closing under
------------
the following conditions exclusively.
1) By mutual agreement of the parties.
2) By the Buyer, if there has been a breach of any material
representation, warranty, commitment or agreement set forth in this
Agreement that is not remedied within ten business days after
notice of such breach is given by the Buyer.
3) By the Sellers, if there has been a breach of any material
representation, warranty, commitment or agreement set forth in this
Agreement that is not remedied within ten business days after
notice of such breach is given by the seller.
4) By the Buyer or the Sellers, if the closing is not concluded later
than June 30, 1999, unless the parties fail to extend this deadline
with mutual agreement. However, the party responsible for the
failure to meet the deadline, is unable to terminate this
Agreement.
5) By the Buyer or Sellers, if any permanent injunction or other order
of a governmental entity of competent authority preventing the
consummation of the transactions contemplated by this Agreement has
become final and nonappealable.
9.4 Effect of Termination. In the event of the termination of this Agreement as
----------------------
provided in section 9.3, this Agreement will be of no further effect. This
does not apply to claims for compensation of one party against the other
party according to section 7 above. Upon termination of this Agreement each
party will, upon request by either
<PAGE>
party, surrender all documents, work papers and documents. This does not
apply to cases where compensation claims have to be raised.
9.5 Mutual Assistance. The parties shall provide mutual assistance to the best
------------------
of their abilities, also after the closing date, after the take-over of the
operations of Sunweb AG and Sunweb GmbH. Furthermore, the Sellers and the
Buyer are committed to give all information and participate in all
transactions and legal acts as are required to execute this Agreement. The
Sellers shall refrain from any action that could have an adverse effect on
the right of Sunweb AG or Sunweb GmbH to conduct the corporation "Sunweb",
with or without additions.
9.6 Costs and Fees. Each party shall bear its costs and fees incurred in
---------------
connection with this Agreement, in particular those related to advisers.
9.7 Public Announcements. Any public announcements in connection with this
---------------------
Agreement shall exclusively be given by mutual agreement of the parties.
9.8 Confidentiality. The parties are committed to observe absolute secrecy
----------------
concerning the conclusion and the contents of this Agreement, unless the
furnishing of such information is required by law or the provisions of this
Agreement.
9.10 Written Form. Any amendments to this Agreement must be made in writing.
------------
9.11 Entire Agreement. This Agreement, the exhibits attached hereto and the
-----------------
other transaction documents contain the entire agreement between the
parties with respect to the subject matter thereof. This Agreement
supersedes all written and oral declarations of intent given by the parties
in connection with any contract negotiations, even if such declarations
deviate from the contents of this Agreement.
9.12 Severability. In the event that any provision of this Agreement would be
-------------
or would become fully or partially invalid or unenforceable, the remaining
provisions in the Agreement will not be affected. The invalid or
unenforceable provision shall be deemed to be replaced by an agreed
provision that comes as close as possible to the purpose of the invalid and
unenforceable provision, in particular in terms of the desired economic
purpose. The same shall apply to any gap in this Agreement.
<PAGE>
9.13 Notices. All notices or communications in connection with this Agreement
--------
shall be made in writing and will be deemed given if sent by post,
courier, personal delivery or fax (to be followed by despatch by post,
courier or personal delivery) to the following addresses.
To the Sellers: Sunweb Internet Services AG
Birchstrasse 230,
CH-8050 Zurich
Phone: 41-1-3064646
Fax: 41-1-3003635
With a copy to: lic. iur. Michael Ebinger
Vorstadt 32, Postbox 4209,
CH-6304 Zug
Phone: 41-41-720702
Fax: 41-41-7290705
To the Buyer: Cybernet Internet Services International, Inc.
Attn. Mr Andreas Eder
Stefan-George-Ring 19-23,
D-81929 Munich
Phone: 49-89-993150
Fax: 49-89-99315199
With a copy to: Besner Kreifels Weber
Attn. Dr. Hubert Besner
Widenmayerstr. 41
D-80538 Munich
Phone: 49-89-2199920
Fax: 49-89-21999233
9.14 Headings. The headings contained in this Agreement are for reference
---------
purposes only and will not affect in any way the meaning or interpretation
of this Agreement.
9.15 Assignment. The Agreement may not be assigned by any party without the
-----------
consent of the other party.
9.16 Governing Law, Jurisdiction. This Agreement shall be governed by Swiss
----------------------------
law, unless the application of other law is mandatory. The place of
jurisdiction for all disputes, if correctly agreed, shall be Zurich.
<PAGE>
9.17 Signing and Faxing of Counterparts. This Agreement may also become
-----------------------------------
effective, by signing the Agreement's signature page and exchanging it by
fax (to be followed by despatch by post, courier or personal delivery).
Zurich/Munich, this day of February 19, 1999
SELLERS: BUYER:
Cybernet Internet Services International,
Inc.
/s/ Jurg Heim /s/ Andreas Eder
- --------------------- -----------------------
(Jurg Heim) (Andreas Eder)
President
/s/ Marco Samek
- --------------------- -----------------------
(Marco Samek)
<PAGE>
Exhibits
Exhibit 1 Sample of Pooling Trust Agreement
Exhibit 2 Multiple Scheme
Exhibit 3 Financial Statements Sunweb AG and Sunweb GmbH
Exhibit 4 Filings, Consents and Approvals for the Sellers
Exhibit 5 Material Agreements of Sunweb AG and Sunweb GmbH
Exhibit 6 Intellectual Property of Sunweb AG and Sunweb GmbH
Exhibit 7 Employment Agreements of Sunweb AG and Sunweb GmbH
Exhibit 8 List of Insurance Policies of Sunweb AG and Sunweb GmbH
Exhibit 9 Agreements between Sunweb AG and Stockholders or
Persons Close and/or Affiliated Enterprises
Exhibit 10 Financial Statements of the Buyer (Prospectus)
Exhibit 11 Filings, Consents and Approvals for the Buyer
<PAGE>
Exhibit 10.32
Cooperation Software Licencing Agreement
----------------------------------------
between
Berningshausen & Neben OHG
Gerhard-Gerdes-StraBe 19, 37079 Gottingen
- hereinafter referred to as "B&N" -
and
Cybernet Internet Services International, Inc.
Stefan-George-Ring 19-23, 81929 Munich
- hereinafter referred to as Cybernet -
Preliminary remark
B&N is active in the area of development and distribution of software products
for inter-company exchange of documents ("EDI"). Cybernet is active in the area
of network services for enterprises. The parties intend to develop EDI platforms
according to the requirement of this agreement, to produce them and to
distribute them. An EDI platform consists basically of software products of B&N
("B&N software") and an IP-based communication structure linking these products.
B&N grants Cybernet the right to connect B&N software with soft-, hardware or
IP-based infrastructure of Cybernet ("Cybernet components") to EDI platforms, to
process them and to market these combined EDI platforms. EDI platforms are to be
offered to companies and/or organizations for the purpose of data exchange.
(S) 1 Program description
1. The B&N software which is the subject of this agreement including the
technical specification and verbal description is listed in Annex 1.
2. The technical specification and the verbal description of the Cybernet
components and possible EDI platforms result from Annex 2.
<PAGE>
(S) 2 Distribution licence
1. B&N hereby grants Cybernet an exclusive, non-transferrable and
chronologically and geographically unrestricted distribution right to the
products which are the subject of the agreement according to Annex 1, which
Cybernet may offer to third parties. Furthermore, Cybernet is entitled to
connect these products to Cybernet components and/or process them and to
offer the EDI platform created in this manner under its own brand, while
existing brands of B&N have to be maintained. The exclusiveness of this
licence is solely restricted according to the provisions of & 3.
Distribution by third parties in their own name (e.g. Cybernet resellers)
requires the advance approval of B&N. (S) 16 of this agreement and will not
be affected by it (i.e. connected enterprises may perform distribution
without the permission of B&N in their own name).
2. The contracting parties may agree that the delivery of B&N programs is
replaced by granting the right of reproduction. In such a case Cybernet B&N,
on an order form, has to show the number of copies and the B&N programs
affected in a written statement (reproduction notice) indicating also the
price to be paid.
3. Cybernet may grant its customers a simple licence which is chronologically
and geographically unrestricted in principle. Cybernet must point out any
copyright entries and/or trademarks of B&N. Cybernet in regard to the EDI
platforms acts in its own name and for its own account.
(S) 3 Self-distribution by B&N
1. B&N further has the chance, to distribute EDI platforms in its own name,
while Cybernet components may not be replaced by products or services of a
third party.
2. Where B&N distributes EDI platforms by using Cybernet components, B&N from
Cybernet receives 40% of the communication turnover made, less the Cybernet
standard considerations (example: standard price call & surf DM 0.07 per
minute and EDloverIP DM 0.15/minute; difference DM 0.08/minute; hence the
B&N percentage of turnover corresponds to 40% of DM 0.08/minute = DM
0.032/minute).
(S) 4 Non-recurrent licencing fee
1. From Cybernet, B&N shall receive an amount of DM 2,000,000 (in words: two
million German marks) plus VAT which is payable and due as follows:
<PAGE>
by January 1, 2000
-------
2. B&N is obliged according to the preceding subsection 1 to invest at least a
partial amount of DM 1,500,000.00 net into the further development of B&N
software according to Annex I and into support. The funds are exclusively
used according to the document of use as per Annex III. Cybernet is entitled
to examine the use any time.
(S) 5 Agreement handling
1. Cybernet orders the programs from B&N. This applies also, if the contracting
parties replaced delivery by a right of reproduction. B&N shall accept the
individual order in writing no later than within seven business days.
2. The other details shall be agreed by the parties with common consent on a
project basis.
(S) 6 Prices and price changes
1. The prices according to Annex 1 applicable to the B&N programs which are
the subject of the agreement are shown in Annex 3.
2. Cybernet shall be granted a discount by B&N of 40% of the end consumer
price achieved. The consideration which Cybernet has to pay to B&N
according to the order note is payable within 30 days after delivery or
confirmation of order for a reproduction note by B&N without deduction by
Cybernet.
3. Price increases during the term of the agreement by more than 10% per year
compared with the last standard price list require the mutual agreement by
the parties.
(S) 7 System integration, development cooperation
1. B&N additionally provides Cybernet with the technical information and
personell support required for the development of EDI platforms. The
necessary resources and services are defined jointly by the parties within
the framework of the relevant customer projects.
2. Cybernet and B&N intend to cooperate in the development of EDI platforms.
Advance development is based on a product development plan of B&N which is
coordinated with Cybernet according to a three-month schedule. The customer-
specific extension within the framework of projects shall not be affected by
it.
<PAGE>
3. B&N untertakes to ensure the compatibility with the predecessor versions on
all advance developments.
(S) 8 Test and new versions of B&N software
1. B&N within 4 weeks of signing the agreement shall submit to Cybernet the B&N
software which is the subject of the agreement for test purposes to further
the development of EDI platforms.
2. Cybernet will examine the B&N software in regard to product description and
the intended purpose. Here Cybernet will assign this task to technically
versed expert staff having sufficient knowledge of B&N software.
3. Four weeks prior to availability of a new version of B&N software, B&N will
provide Cybernet with this version.
(S) 9 Delivery and support for older versions
During the term of this agreement and up to 12 months after issue of the last-
released version of the B&N software which is the subject of this agreement, B&N
shall keep the last but one status, based on the newest program release,
available.
(S) 10 Support
1. Cybernet assumes responsibility towards its customers for care and
maintenance of EDI platforms.
2. B&N, as support for the maintenance service which must be rendered to
Cybernet customers and for purposes of licence use and realization Cybernet
provides the following maintenance services:
- ensuring the use of B&N software according to the agreement on a
continuous basis
- future releases, updates, upgrades and all follow-up products of B&N
software;
- hotline and second-level support for B&N software components 24hrs x 7
days per week. The processes for the first and second line support are
defined by the parties with comment consent (trouble ticking, customer
identification etc.)
<PAGE>
3. For its support services B&N in accordance with the support services
according to the preceding subsection 2, B&N shall receive a percentage of
50% of support turnovers realized by Cybernet with Cybernet customers in
connection with EDI platforms. Where based on the agreement B&N realizes
immediate support turnovers with customers in connection with EDI platforms,
conversely, Cybernet shall receive a percentage of 50% of the support
turnovers of B&N.
(S) 11 Guaranty
1. B&N guarantee that the B&N software meets the specifications according to
Annex 1 and that it has no defects for which B&N is responsible.
2. The guaranty period is twelve months. It starts with the shipment of the B&N
software to Cybernet and/or the acceptance of B&N software as being in
conformity of the agreement.
(S) 12 Rights of third parties
1. B&N vouches for the fact hat the B&N software is free of rights of third
parties excluding or limiting its use. Where the use of the B&N software in
line with the agreement is affected or made impossible by rights claimed by
third parties, B&N shall be committed to change the B&N software in a way or
replace it so that the rights claimed by third parties are no longer
affected while meeting the specifications according to Annex 1.
2. B&N assumes the sole and, as far as its size is concerned, unlimited
liability towards those who claim a violation of their rights by B&N
software. B&N is entitled and committed to handle all disputes resulting
from these claims at its own expense. Where claims by third parties are
raised against Cybernet for violation of their rights by B&N software, B&N
shall indemnify Cybernet -other legal claims notwithstanding - against all
claims (for compensation) and bear all costs associated with such a claim
(e.g. in connection with legal disputes). Cybernet is obliged to inform B&N
immediately, if claims are raised against Cybernet for violation of third
party rights based on B&N software.
(S) 13 Liability
The parties are liable - the legal reason notwithstanding - for damage which
they or a person they have to stand for caused according to the legal
provisions.
<PAGE>
(S) 14 Confidentiality and secrecy
1. The parties shall use all business and operating secrets of the other party,
particularly all documents, documentations, drawings, production procedures
and production methods and other know-how of the other party and, where
provided, the source code of computer programs, confidentially and use them
only for the purpose of the agreement.
2. This information may only be made accessible to third parties ,if the party
concerned agrees in writing and if required for the implementation of the
agreement.
(S) 15 Term of agreement and cancellation
1. This agreement takes effect on January 1, 2000. The term is three years.
Unless the agreement is cancelled six months before the end of the
agreement, it shall renew itself for another year.
2. Where B&N cancels the agreement in accordance with the preceding subsection
1, B&N, for a period of 12 months after the agreement, shall be under the
obligation to Cybernet to provide all support services in accordance with
the preceding (S) 12.
3. The right to cancel this agreement for cause remains unaffected. Either
party is particularly entitled to cancel this agreement for cause with
immediate effect, if
a) one of the parties files a bankruptcy petition for its assets in
accordance with (S) 18 InsO or
b) where insolvency proceedings are commenced against the assets of one
of the parties or the commencement of insolvency proceedings are
refused for lack of assets covering the costs or
c) where substantial parts of the assets of either party have been
seized and the cancellation of the seizure has not been proven within
three months from taking effect or no later than exploitation
d) one of the parties has to confirm the correctness of its list of
assets in lieu of an oath
4. The cancellation of this agreement by Cybernet for cause in accordance with
the preceding subsection 3 shall not affect Cybernet`s right to
continuously use and exploit the software of B&N in accordance with the
preceding (S) 2. Cybernet, in the case of cancellation for cause,
<PAGE>
has a right to use the source codes and may continue to use them in its own
name and for its own account.
5. The termination of this agreement - regardless of the reason - shall leave
the effect and validity vis-a-vis licences granted to Cybernet prior to
termination of the agreement unaffected.
(S) 15 Associated companies
The companies in which the parties hold a majority interest are also entitled
from this agreement.
(S) 17 Providing security
1. B&N, to provide security for the Cybernet entitlement according to the
preceding (S) 15 subsection 4, is obliged to deposit the source code of B&N
software (including future releases, updates, upgrades and all successor
products) in its latest status version plus the pertaining documentation
with lawyer Mr Besner as trustee and to leave it there. The costs incurred
shall be borne by Cybernet.
2. The trustee is irrevocably instructed by the parties to release the source
code to Cybernet, if Cybernet cancelled this agreement for cause. For the
purpose of proof - the presentation of a public document (e.g.certificate of
registration) will suffice.
(S) 18 General provisions
1. Where single provisions of this agreement are fully or partly invalid or
void and unenforceable or should there be a gap in this agreement the
validity of the other provisions shall not be affected. In lieu of the
valid or void or unenforceable provision, for filling the gap, a reasonable
provision shall be agreed which - within the scope of what is legally
admissible - is closest to the economic result which the parties sought
through the invalid or unenforceable provision and what according to the
sense and purpose of the agreement they would have primarily sought before
resorting to the legal provisions, had they considered the unregulated
point; it is helpful to agree on it and lay it down in writing.
3. This agreement and its annexes contain all arrangements. Oral subsidiary
arrangements were not made. Amendments to the agreement require the written
form.
4. The court venue where legally admissible is Munich. German law shall apply.
<PAGE>
Munich, December 28, 1999
/s/ Illegible Signature /s/ Illegible Signature
<PAGE>
Exhibit 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made effective as of the 1st day of November, 1999,
by and between Cybernet Internet Services International, Inc., a Delaware
corporation (the "Corporation"), and Bernd Buchholz (the "Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Employee desires to be employed by the Corporation as Executive
Vice President Sales and Marketing upon the terms and conditions hereinafter set
forth, and the Corporation desires that the Employee be so employed.
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, the parties, intending to be legally bound,
agree as follows:
I. Term of Employment. Subject to the terms and conditions of this
------------------
Employment Agreement, the Corporation hereby employs the Employee as Executive
Vice President Sales and Marketing, and the Employee hereby agrees to serve the
Corporation in such capacity for the period commencing on the date hereof (the
"Effective Date") and ending on the third anniversary of the Effective Date (the
"Employment Period"), unless sooner terminated as hereinafter provided.
2. Scope of Duties. The Employee shall serve as Executive Vice President
---------------
Sales and Marketing of the Corporation, subject to the direction and control of
the Board of Directors of the Corporation (the "Board"). In such capacity, the
Employee shall have the customary powers, responsibilities and authority of
presidents of corporations of the size, type, and nature of the Corporation as
it exists from time to time. The Employee shall undertake such other duties as
the Board from time to time shall reasonably designate, including, without
limitation, serving as a consultant to affiliates of the Corporation and serving
on the Board.
<PAGE>
3. Time to be Devoted to Employment. Except during vacation periods or
--------------------------------
absences due to temporary illness, the Employee shall devote all of his
professional and business time, attention, and energies to his duties and
responsibilities hereunder as is reasonable to insure the Corporation's proper
conduct. In performing such services, the Employee shall use his best efforts
to promote the interests of the Corporation pursuant to and in accordance with
reasonable business policies and procedures, as fixed from time to time by the
Board. The Employee covenants and agrees that he will faithfully adhere to and
fulfill such policies, consistent with this Agreement, as are established from
time to time by the Board. Nothing contained herein shall prevent or be
construed as preventing the Employee from holding or purchasing up to five
percent (5%) of any class of stock or securities of a corporation which is
listed on a national securities exchange or regularly traded in the over-the-
counter market, or making other investments or participating in business
ventures not involving telecommunication services and solutions, provided that
such investments and business ventures do not conflict with his duties or
obligations to the Corporation as provided in this Employment Agreement.
4. Compensation. As total compensation for all services to be rendered by
------------
the Employee during the Employment Period, the Employee shall receive a salary
at the rate of Two Hundred Twenty-Five Thousand Deutsche Mark (DM 225,000) per
annum ("Base Salary"), which Base Salary shall be subject to federal, state, and
other tax withholdings, and which shall be paid monthly in arrears or on such
other basis as other employees of the Corporation generally are paid and which
shall be subject to applicable US-taxes or taxes in the Employee's country of
residence. In addition the Employee shall receive a bonus salary up to Seventy-
Five Thousand Deutsche Marks (DM 75.000) per annum ("Bonus Salary") according to
the bonus scheme (the "Bonus Salary Scheme") as approved from time to time by
the Board of Directors.
5. Fringe Benefits. The Employee shall be entitled to participate in any and
---------------
all fringe benefits and/or plans made available to other executives of the
Corporation (to the extent the Employee qualifies therefor under the specific
terms and conditions of each such benefit or plan), including, without
limitation, dental/medical insurance and employee benefit plans which
2
<PAGE>
are or which may become available generally to senior management of the
Corporation. The Employee shall be entitled to 30 working days vacation during
each year of the Employment Period, to be taken at such time or times as the
reasonable needs of the Corporation's business shall allow.
6. Reimbursement of Expenses. The Corporation shall reimburse the Employee
-------------------------
for all reasonable expenses incurred in connection with the promotion of the
business of the Corporation, including expenses for travel, entertainment, and
similar expenses incurred by the Employee on the Corporation's behalf; provided,
however, no such reimbursement shall be made except upon the presentation by the
Employee of an itemized account or other evidence of those expenses for which
reimbursement then is being sought, all in form reasonably satisfactory to the
Corporation.
7. Termination of Employment. The Employee's employment shall terminate upon
-------------------------
the Employee's resignation or death, and may be terminated by the Board on
account of the Employee's Disability (as defined below) or for Cause (as defined
below).
(a) If the Employee dies during the term of his employment hereunder, the
Corporation shall be obligated to pay to the Employee's estate all
earned but unpaid Base Salary through the date of his death and for
an additional period of twelve months after his death.
(b) If the Employee shall become physically or mentally disabled
("Disability") during the term of this Employment Agreement such that
(i) in the Board's good faith judgement, he is permanently incapable
of properly performing each of the duties customarily performed by
him hereunder, or (ii) such Disability lasts for a period of 60
consecutive days or for 90 days in any six-month period and the
Corporation elects to treat such Disability as being permanent in
nature, then the Corporation shall be obligated to pay to the
Employee all earned but unpaid Base Salary due to the Employee
hereunder through the date of such termination.
3
<PAGE>
(c) If the Employee is terminated for Cause or the Employee resigns, the
Employee shall be entitled to receive only his Base Salary through
the date of termination.
(d) As used herein, "Cause" shall mean:
i) the willful failure by the Employee to substantially
perform his duties hereunder (including, without limitation,
the Employee's refusal to carry out the directives of the
Board provided that such directives do not offend against a
law), for reasons other than death or disability;
ii) a material breach of this Employment Agreement by the
Employee (including, without limitation, the breach of any
provision of Sections 8 and/or 9 hereof);
iii) the willful engaging by the Employee in misconduct
materially injurious to the Corporation;
iv) a breach of the Employee's duty of loyalty to the
Corporation or any act of dishonesty or fraud with respect
to the Corporation; or
v) the commission of a felony, a crime involving moral
turpitude or other act causing material harm to the
Corporation's standing and reputation.
8. Disclosure of Information.
-------------------------
4
<PAGE>
(a) All memoranda, notes, records, and other documents made or compiled
by the Employee or made available to him during the term of his
employment concerning the business of the Corporation or any
affiliate of the Corporation (for purposes of this Section 8, the
"Corporation"), shall be the Corporation's property and shall be
delivered to the Corporation on the termination of the Employee's
employment. The Employee shall not use for himself or others, or
divulge to others, any proprietary or confidential information of the
Corporation obtained by him as a result of his employment, unless
authorized by the Corporation. For purposes of this Section 8, the
term "proprietary or confidential information" shall mean all
information which is known only to the Employee or to the Employee
and the employees, former employees, consultants, or others in a
confidential relationship with the Corporation, and relates to
specific matters such as trade secrets, customers, potential
customers, vendor lists, pricing and credit techniques, research and
development activities, private processes, business plans, technical
information, books and records, and any other information which the
Corporation is obligated to keep confidential pursuant to the
Corporation's contractual obligations to third parties, as they may
exist from time to time, which the Employee may have acquired or
obtained by virtue of work heretofore or hereafter performed for or
on behalf of the Corporation, or which he may acquire or may have
acquired knowledge of during the performance of said work, and which
is not in the public domain.
(b) In the event of a breach or a threatened breach by the Employee of
the provisions of this Section 8, the Corporation shall be entitled
to an injunction, without being required to post any bond,
restraining the Employee from disclosing, in whole or in part, the
aforementioned proprietary or confidential information of the
Corporation, or from rendering any services to any person, firm,
corporation, association, or other entity to whom such proprietary or
confidential information, in whole or in part, has been disclosed or
is threatened to be disclosed. Nothing contained herein shall be
construed as prohibiting the Corporation from pursuing any other
remedies available to the Corporation for such breach or threatened
breach, including the recovery of damages from the Employee.
5
<PAGE>
9. Restrictive Covenants.
---------------------
(a) In light of the unique and valuable services it is expected the
Employee will render to the Corporation, the Employee's knowledge of
the business of the Corporation and proprietary information relating
to the business of the Corporation and similar knowledge regarding
the Corporation it is expected the Employee will obtain during the
course of his employment with the Corporation, and in consideration
of this Agreement and the compensation to be received by the Employee
hereunder, the Employee agrees that for so long as he is employed by
the Corporation and for a period of one year thereafter (the
"Covenant Period"), he will not compete, directly or indirectly, with
the Corporation or any of its subsidiaries now owned or hereafter
acquired (for purposes of this Section 9, the "Corporation") or,
directly or indirectly (except as permitted by Section 3 hereof),
own, manage, operate, control, loan money to, or participate in the
ownership, management, operation or control of, or be connected with
as a director, officer, employee, partner, consultant, agent,
independent contractor or otherwise, or acquiesce in the use of his
name in, any other business or organization which competes, directly
or indirectly, with the Corporation, in any geographical area in
which the Corporation is then conducting business or any geographical
area in which, to the knowledge of the Employee, the Corporation
plans to conduct business within a six (6) month period.
(b) During the Covenant Period, the Employee will not, directly or
indirectly, either individually or on behalf of any other person or
entity (i) solicit customers, suppliers, or other business relations
of the Corporation for the purpose of interfering with or encouraging
them to terminate their relationship with the Corporation, or (ii)
encourage other employees (full-time or part-time) of the Corporation
to terminate their employment with the Corporation.
(c) It is acknowledged and agreed that the restrictions contained in this
Section 9, including, without limitation, the time periods and the
geographical areas of the restrictions, are fair and reasonable and
do not place any undue hardship on the Employee, and are reasonably
required for the protection of the goodwill, the business, and the
interests of the
6
<PAGE>
Corporation and its officers, directors, and other employees.
(d) It is the desire and intent of the parties that the provisions of
this Section 9 shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision
of this Section 9 shall be adjudicated to be invalid or
unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or
unenforceable. Such deletion shall apply only with respect to the
operation of such provisions of this Section 9 in the particular
jurisdiction in which such adjudication is made. In addition, if the
scope of any restriction contained in this Section 9 is too broad to
permit enforcement thereof to its fullest extent, then such
restriction shall be enforced to the maximum extent permitted by law,
and the Employee hereby consents and agrees that such scope may be
judicially modified in any proceeding brought to enforce such
restriction.
(e) In the event of a breach or threatened breach by the Employee of the
provisions of this Section 9, the Corporation shall be entitled to an
injunction and such other equitable relief as may be necessary or
desirable to enforce the restrictions contained herein. Nothing
herein contained shall be construed as prohibiting the Corporation
from pursuing any other remedies available for such breach or
threatened breach or any other breach of this Employment Agreement.
10. Representations.
---------------
(a) The Employee represents and warrants to the Corporation that (i) the
execution, delivery and performance of this Employment Agreement by
the Employee does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order,
judgment or decree to which the Employee is a party or by which he is
bound, (ii) the Employee is not a party to or bound by any employment
agreement, non-compete agreement or confidentiality agreement with
any other person or entity, and (iii) upon the
7
<PAGE>
execution and delivery of this Employment Agreement by the Employee,
this Employment Agreement shall be the valid and binding obligation
of the Employee, enforceable against him in accordance with its
terms.
(b) The Corporation represents and warrants to the Employee that (i) the
execution, delivery, and performance of this Employment Agreement by
the Corporation does not and will not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order,
judgment or decree to which the Corporation is a party or by which he
is bound, and (ii) upon the execution and delivery of this Employment
Agreement by the Corporation, this Employment Agreement shall be the
valid and binding obligation of the Corporation, enforceable against
it in accordance with its terms.
11. Miscellaneous.
-------------
(a) Notices. All notices required or permitted to be given under the
-------
provisions of this Employment Agreement shall be in writing and
delivered personally or by certified or registered mail, return
receipt requested, postage prepaid, to the following persons at the
following addresses, or to such other persons at such other addresses
as any party may request by notice in writing to the other party to
this Employment Agreement.
If to the Employee:
Mr. Bernd Buchholz
Am Muhlenbach 19
40670 Meerbusch, Germany
8
<PAGE>
If to the Corporation:
Cybernet Internet Services International, Inc.
Stefan-George-Ring 19-23
81929 Munich, Germany
(b) Successors and Assigns. This Employment Agreement shall be binding
----------------------
upon the successors and assigns of the Corporation, and shall inure
to the benefit of and be enforceable by and against its successors
and assigns. This Employment Agreement is personal in nature and may
not be assigned or transferred by the Employee without the prior
written consent of the Corporation.
(c) Entire Agreement. This instrument contains the entire understanding
----------------
and agreement between the parties relating to the subject matter
hereof, and neither this Employment Agreement nor any provision
hereof may be waived, modified, amended, changed, discharged, or
terminated, except by an agreement in writing signed by the party
against whom enforcement of any waiver, modification, change,
amendment, discharge, or termination is sought.
(d) Counterparts. This Employment Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an
original, and all of which counterparts shall together constitute a
single agreement.
(e) Illegality. If any one or more of the provisions of this Employment
----------
Agreement shall be invalid, illegal, or unenforceable in any respect,
the validity, legality, and enforceability of the remaining
provisions contained herein shall not in any way be affected or
impaired thereby.
(f) Captions. The captions of the sections hereof are for convenience
--------
only and shall not control or affect the meaning or construction of
any of the terms or provisions
9
<PAGE>
of this Employment Agreement.
(g) Governing Law. This Employment Agreement shall be governed by and
-------------
construed in accordance with the laws of the Federal Republic of
Germany, without giving any effect to any doctrine pertaining to the
conflict of laws. The parties hereto irrevocably (i) submit to the
jurisdiction of any German state or federal court in any action or
proceeding arising out of or relating to this Employment Agreement,
(ii) agree that all claims with respect to such action or proceeding
shall be heard and determined in such a German state or federal
court, and (iii) waive, to the fullest extent possible, the defense
of an inconvenient forum. The parties hereby consent to and grant any
such court jurisdiction over the persons of such parties and over the
subject matter of any such dispute and agree that delivery or mailing
of process or other papers in connection with any such action or
proceeding in the manner provided in Section 11 hereof or in such
other manner as may be permitted by law, shall be valid and
sufficient service thereof.
IN WITNESS WHEREOF, the parties hereto have set their hands and executed this
Employment Agreement on the day and year first above written.
CYBERNET INTERNET SERVICES INTERNATIONAL INC.
By: /s/ Illegible Signature
------------------------------
/s/ Bernd Buchholz
---------------------------------
Bernd Buchholz
10
<PAGE>
EXHIBIT 21.1 SUBSIDIARIES
<TABLE>
<CAPTION>
Direct or Indirect Percentage Owned
-------------------- ----------------
<S> <C> <C>
Cybernet Internet
Dienstleistungen AG
Germany Direct 100%
Vianet
Telekommunikations AG
Austria Direct 100%
Eclipse S.p.A.
Italy Direct 100%
Cybernet Internet
Beteiligungsgesellschaft GmbH
Germany Indirect 100%
OpenNet Internet
Solutions GmbH
Germany Indirect 100%
Cybernet E-Commerce
GmbH & Co. KG
Germany Indirect 100%
SunWeb Internet
Services SIS AG
Switzerland Direct 51%
Cybernet Italia S.p.A (formerly Flashnet) Direct 100%
Italy
Novento Telecom AG
Germany Direct 100%
Cybernet Network
Services GmbH
Germany Direct 100%
Cybernet Network
Services GmbH
Switzerland AG Indirect 100%
SunWeb Internet
Services GmbH
Germany Indirect 100%
Cybernet Network
Services GmbH
Austria Indirect 100%
Superweb AG Indirect 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 73,213
<SECURITIES> 41,237
<RECEIVABLES> 9,162
<ALLOWANCES> 1,192
<INVENTORY> 0
<CURRENT-ASSETS> 140,956
<PP&E> 34,669
<DEPRECIATION> (6,190)
<TOTAL-ASSETS> 287,800
<CURRENT-LIABILITIES> 38,232
<BONDS> 180,809
0
4
<COMMON> 21
<OTHER-SE> 68,734
<TOTAL-LIABILITY-AND-EQUITY> 68,759
<SALES> 22,298
<TOTAL-REVENUES> 22,298
<CGS> 26,062
<TOTAL-COSTS> 26,062
<OTHER-EXPENSES> 43,708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> (66,019)
<INCOME-TAX> 14,384
<INCOME-CONTINUING> (51,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (51,535)
<EPS-BASIC> (2.59)
<EPS-DILUTED> (2.59)
</TABLE>
