-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JIKv+/Lz7RLFXHr1OhUwopWL+8K9lsn1bUTYM0Bbfb1UwltJPkczX27YCQB8/Tob 6Rlhbdx45XLUq1dpEK2tzw== 0000928385-00-001032.txt : 20000331 0000928385-00-001032.hdr.sgml : 20000331 ACCESSION NUMBER: 0000928385-00-001032 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYBERNET INTERNET SERVICES INTERNATIONAL INC CENTRAL INDEX KEY: 0001070658 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 510384117 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-25677 FILM NUMBER: 587039 BUSINESS ADDRESS: STREET 1: POWELL GOLDSTEIN FRAZER & MURPHY STREET 2: 1001 PENNSYLVANIA AVE NW CITY: WASHINGTON STATE: DC ZIP: 20004 BUSINESS PHONE: 2026247235 MAIL ADDRESS: STREET 1: POWELL GOLDSTEIN FRAZER & MURPHY STREET 2: 1001 PENNSYLVANIA AVE NW CITY: WASHINGTON STATE: DC ZIP: 20004 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- 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. __________ -------------------- CYBERNET INTERNET SERVICES INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) -------------------- 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) -------------------- 49-89-993-150 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) -------------------- 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- 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
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. 1 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 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.
Europe United States ------------ -------------------------- 1997 2002E 1995 1996 1997 2002E ----- ----- ----- ----- ----- ----- 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%
- -------- 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. 3 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.
Connectivity Hosting and VPN --------------------------------------------- --------------------------------------------- Anticipated Anticipated 1997 2000E Change 1997 2000E Change ($ in millions) ($ in millions) (%) per annum ($ in millions) ($ in millions) (%) per annum --------------- --------------- ------------- --------------- --------------- ------------- Finland................. 17 42 35.2% 1 20 171.4% France.................. 94 383 59.7% 3 92 213.0% Germany................. 447 1,084 34.4% 16 184 125.7% Italy................... 30 169 77.9% 5 50 115.4% Netherlands............. 28 85 44.8% 6 42 91.3% Spain................... 35 136 57.2% 2 31 49.3% Sweden.................. 31 67 29.3% 4 34 104.1% United Kingdom.......... 154 381 35.2% 16 146 109.0% Other (*)............... 83 272 48.5% 23 123 74.9% --- ----- ---- --- --- ----- Total................. 919 2,619 41.8% 76 722 111.8% === ===== ==== === === =====
- -------- (*) 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: 4 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; 5 . 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:
Product Name Characteristics ------------ --------------- 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.
6 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:
Product Name Characteristics ------------ --------------- 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: Product Name Characteristics ------------ --------------- 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.
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 7 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:
Product Name Characteristics ------------ --------------- 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.
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:
Product Name Characteristics ------------ --------------- 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.
8 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 9 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. 10 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. 11 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' 12 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. 13 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. 14 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 15 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 16 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. 17 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
High Low 1997 ------- -------- Third Quarter(/1/)............................ $11.250 $ 9.310 Fourth Quarter................................ $16.250 $ 7.750 High Low 1998 ------- -------- First Quarter................................. $34.500 $11.500 Second Quarter................................ $28.750 $20.000 Third Quarter................................. $29.875 $18.000 Fourth Quarter................................ $37.250 $13.000 High Low 1999 ------- ------- 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 High Low 2000 ------- ------- 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 High Low 1998 ------------ ------------ Fourth Quarter (beginning December 9, 1998)... (Euro)33.029 (Euro)24.900 High Low 1999 ------------ ------------ 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 High Low 2000 ------------ ------------ January.......................................(Euro)12.100 (Euro) 8.810 February......................................(Euro 18.500 (Euro)10.600
18 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:
- ------------------------------------------------------------------------------------------------------------- Securities Sold Purchasers Consideration Exemption - --------------------------------- Date Number of Shares Class of Stock - ------------------------------------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------------------------------------
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
Years ended December 31, -------------------------------------------------- 1997 1998 1999 (in thousands, except per share data) 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
- ---------------------------------- (1) Including lease obligations 20 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.
For year ended December 31 ------------------------------ 1997 1998 1999 --------- --------- -------- 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%
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 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 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 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 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 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 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 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 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 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 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 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 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 EXHIBIT INDEX
Exhibit Number Description ------- ----------- 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).
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Exhibit Number Description ------- ----------- 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).
35
Exhibit Number Description ------- ----------- 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
- -------- ** Filed herewith 36 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.
Signature Title Date --------- ----- ---- /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
37
Signature Title Date --------- ----- ---- /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)
38 INDEX TO FINANCIAL STATEMENTS
Page --------- 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
F-1 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 CYBERNET INTERNET SERVICES INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1998 1999 ----------------- ----------------- ( in thousands ) 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 ======= ========
See accompanying notes to consolidated financial statements F-3 CYBERNET INTERNET SERVICES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For year ended December 31 ---------------------------------------------------- 1997 1998 1999 ---------------- ---------------- ---------------- (in thousands, except share and per share data) 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 ========== =========== ===========
See accompanying notes to consolidated financial statements F-4 CYBERNET INTERNET SERVICES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For year ended December 31, ------------------------------- 1997 1998 1999 -------- --------- ---------- (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
See accompanying notes to consolidated financial statements F-5 CYBERNET INTERNET SERVICES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (all amounts in thousands)
Common Stock Preferred Stock Additional --------------------------------- Subscription Paid-In Shares Amount Shares Amount Receivable Capital ------ ------ -------- ------- ------------- --------- 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 ====== === ====== === ===== ========
Unrealised Accumulated Total Accumulated holding Translation Deficit gains/(losses) Adjustment Equity ------------ -------------- -------------- -------------- 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 ======== ================ ======= ========
F-6 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 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 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:
Year ended 31 December ---------------------- 1997 1998 --------- --------- (in thousand except per share data) Revenue............................................. $ 7,468 $12,590 Net loss............................................ (2,066) (6,068) Basic and diluted loss per share.................... $ (0.21) $ (0.38)
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 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.
Year ended 31 December --------------------------------------- 1998 1999 ---------------- ---------------- (in thousand except per share data) Revenue $ 17,764 $ 30,281 Net loss (12,875) (54,669) Basic and diluted loss per share $ (0.77) $ (2.75)
F-10 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:
Cost Unrealized Unrealized Market holding holding value gains losses Short term investments (in thousands) 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 ======= ============ ==== =======
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:
December 31 ---------------------------------------- 1998 1999 ------------------ ------------------ ( in thousands) 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 ======= =======
F-11 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:
Year ending December 31 (in thousands) 2000............................................................. $ 7,413 2001............................................................. 3,254 2002............................................................. 2,484 2003............................................................. 2,052 2004............................................................. 510 Thereafter......................................................... 232 ------- $15,945 =======
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:
Year ending December 31 ( in thousands) 2000............................................................ $1,993 2001............................................................ 1,280 2002............................................................ 600 2003............................................................ 513 2004............................................................ 314 Thereafter - ------ 4,700 Less: Interest Portion............................................... (535) ------ $4,165 ======
7. Other assets Other non current assets consists principally of expenses incurred in connection with the bonds issued during 1999 and amounts allocated to customer base and management contracts in connection with business acquisitions. Bond issuance costs of DM 13,816,000 ($ 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 9. Long term debt The Company's debt consisted of the following:
December 31 ---------------------------- 1998 1999 ------------- ------------- (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 ===== ========
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 . 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
Bond Carrying Fair value value ----------- ---------- (in thousands) 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
. 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 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.
Option Exercise Weighted Average Stock Options Price per Share Exercise Price -------------------- -------------------- -------------------- 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
F-15 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.
1998 Grants 1999 Grants --------------------- --------------------- 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%
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:
Year ended December 31, ------------------------------------------ 1998 1999 -------------------- -------------------- Proforma net loss- thousand................. $4,996 $56,944 Proforma net loss per share - basic and diluted.................................... $ 0.31 $ 2.87
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:
Year ended December 31, ------------------------------------------------------- 1997 1998 1999 -------------------- ----------------- -------------- ( in thousands) Germany........................................ $(2,303) $(10,481) $(58,081) Others......................................... (20) (609) (7,938) ------- -------- -------- $(2,323) $(11,090) $(66,019) ======= ======== ========
The components of the provision for income taxes, substantially all of which relates to Germany, are as follows:
Year ended December 31, ---------------------------------------------------- 1997 1998 1999 ----------------- ----------------- -------------- ( in thousands) Current.......................................... 10 - 16 Deferred......................................... (1,349) (6,172) (14,400) ------- ------- -------- Income tax benefit............................... $(1,339) $(6,172) $(14,384) ======= ======= ========
The Company has net deferred tax assets as of December 31,1998 and 1999 as follows:
December 31, ------------------------------ 1998 1999 --------------- ------------- Deferred tax assets ( in thousands) Net operating losses........................................ $11,695 $ 34,198 Other....................................................... 856 ------- -------- 11,695 35,054 Valuation allowance......................................... - (12,250) ------- -------- $11,695 $ 22,804 ======= ========
F-16 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 ======= ========
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:
Year ended December 31 ----------------------------------------------------- 1997 1998 1999 (in thousands) 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) ======= ======= ========
14. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share:
December 31, --------------------------------- 1998 1999 ---------------- --------------- (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)
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 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:
Year ended December 31, ----------------------------------------------- 1997 1998 1999 ------------ ---------------- --------------- (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 ======= ======== ========
F-18 The Company's property, plant and equipment by geographic location and capital expenditures by geographic area are as follows:
December 31, ---------------------------- 1998 1999 ------------ ----------- Property, plant and equipment (in thousands) Germany.............................................. $6,335 $18,918 US................................................... -- -- Italy................................................ 936 6,263 Other................................................ 699 3,298 ------ ------- Total................................................ $7,970 28,479 ====== =======
December 31, --------------- Capital Expenditures: 1998 1999 ----------- ----------- (in thousands) Germany.............................................. $5,097 $16,761 US................................................... -- -- Italy................................................ 937 4,015 Other................................................ - 3,234 ------ ------- Total................................................ $6,034 $24,010 ====== =======
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.
___________________________________________________________________________________________________________________ Schedule II $ thousand Balance at Charged to costs Recoveries Balance at end of beginning of and expenses period period 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
F-19 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 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 EX-10.1.1 2 EXHIBIT 10.1.1 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 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 EX-10.29 3 EXHIBIT 10.29 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: 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. (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 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. 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 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. (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. 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 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. 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 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., 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 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 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. (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. (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. (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 EX-10.29.1 4 EXHIBIT 10.29.1 Exhibit 10.29.1 Sale and Transfer of Stock of Novento Telecom AG and Multicall Telefonmarketing - ------------------------------------------------------------------------------- AG -- and Purchase and Assignment of Claims ------------------------------------- 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. (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 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. (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. ------- 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. -------- 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 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 ------- 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 ------- 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 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, ------- 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. 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. (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 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. (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 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. (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. (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 EX-10.30 5 EXHIBIT 10.30 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 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 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 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. 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, 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. 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. 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 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. 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. 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. 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 EX-10.30.1 6 EXHIBIT 10.30.1 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. 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. 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. 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) EX-10.31 7 EXHIBIT 10.31 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 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. 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 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. 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. 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 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 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 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. 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 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. 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. 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; 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 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. 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 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. 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. 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) 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 EX-10.32 8 EXHIBIT 10.32 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. (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: 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. 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.) 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. (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, 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. Munich, December 28, 1999 /s/ Illegible Signature /s/ Illegible Signature EX-10.33 9 EXHIBIT 10.33 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. 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 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 (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 (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 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 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 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 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 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 EX-21 10 EXHIBIT 21 EXHIBIT 21.1 SUBSIDIARIES
Direct or Indirect Percentage Owned -------------------- ---------------- 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%
EX-27 11 EXHIBIT 27
5 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 73,213 41,237 9,162 1,192 0 140,956 34,669 (6,190) 287,800 38,232 180,809 0 4 21 68,734 68,759 22,298 22,298 26,062 26,062 43,708 0 18 (66,019) 14,384 (51,535) 0 0 0 (51,535) (2.59) (2.59)
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